<PAGE>
As filed with the Securities and Exchange Commission on July 20, 2000
Registration Nos. 333-41340
333-37428
333-31494
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
Intermediate Term Trust 35
California Trust 176
Florida Trust 93
B. Name of depositor:
SALOMON SMITH BARNEY INC.
C. Complete address of depositor's principal executive offices:
SALOMON SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
D. Name and complete address of agent for service:
LAURIE A. HESSLEIN
Salomon Smith Barney Inc.
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.
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--------------------------------------------------------------------------------
<PAGE>
TAX EXEMPT SECURITIES TRUST
--------------------------------------------------------------------
Intermediate Term Trust 35
California Trust 176
Florida Trust 93
Unit Investment Trusts
SalomonSmithBarney The Tax Exempt Securities Trust is sponsored by
--------------------- Salomon Smith Barney Inc. and consists of three
A member of citigroup separate unit investment trusts: Intermediate Term
[LOGO] Trust 35, California Trust 176 and Florida Trust
93. The Intermediate Term Trust contains a fixed
portfolio of intermediate term municipal bonds and
each state designated 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 July 20, 2000
<PAGE>
TAX EXEMPT SECURITIES TRUST
INVESTMENT SUMMARY AS OF JULY 19, 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 July 19, 2000 would have been
$1,016.74 for the Intermediate Term Trust, $1,009.57 for the California Trust
and $971.60 for the Florida 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 3.70% (3.842% of the aggregate offering price of
the bonds per
A-2
<PAGE>
unit) for the Intermediate Term Trust and 4.70% (4.932% of the aggregate
offering price of the bonds per unit) for the California and Florida
Trusts
. 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 4.00% (4.167% of the aggregate bid price of the
bonds per unit) for the Intermediate Term Trust and 5.00% (5.263% of the
aggregate bid price of the bonds per unit) for the California and Florida
Trusts
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 INTERMEDIATE TRUST 35
--------------------------------------------------------------------------------
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)............................................ 3.70% $37.53
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .246% $ 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............................................... .139% $ 1.36
Other Operating Expenses.................................... .033% $ .32
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .026% $ .25
---- ------
Total..................................................... .198% $ 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 .198% and a 5% annual return
on the investment throughout the periods............... $390 $431 $477 $613
</TABLE>
The example assumes reinvestment of all dividends and distributions and
utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The example should not be
considered a representation of past or future expenses or annual rate of
return; the actual expenses and annual rate of return may be more or less than
those assumed for purposes of the example.
A-4
<PAGE>
TAX EXEMPT SECURITIES TRUST
FEE TABLE FOR CALIFORNIA TRUST 176
--------------------------------------------------------------------------------
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% $47.33
Maximum Sales Charge Imposed on Reinvested Dividends......... 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs.... .248% $ 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................................................ .144% $1.38
Other Operating Expenses..................................... .035% $ .34
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees......................................... .026% $ .25
---- -----
Total...................................................... .205% $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 .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-5
<PAGE>
TAX EXEMPT SECURITIES TRUST
FEE TABLE FOR FLORIDA TRUST 93
--------------------------------------------------------------------------------
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% $45.55
Maximum Sales Charge Imposed on Reinvested Dividends......... 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs.... .258% $ 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................................................ .151% $1.39
Other Operating Expenses..................................... .039% $ .36
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees......................................... .027% $ .25
---- -----
Total...................................................... .217% $2.00
==== =====
</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 .217%
and a 5% annual return on the investment throughout
the periods......................................... $491 $537 $586 $734
</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
SUMMARY OF ESSENTIAL INFORMATION
AS OF JULY 19, 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
July 19, 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 $1.72 for the Intermediate Term
Trust, $1.80 for the California Trust and $1.72 for the Florida 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-7
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION
AS OF JULY 19, 2000
<TABLE>
<CAPTION>
Intermediate
Term California Florida
Trust 35 Trust 176 Trust 93
------------ ---------- ----------
<S> <C> <C> <C>
Principal Amount of Bonds in Trust........ $4,500,000 $3,000,000 $2,000,000
Number of Units........................... 4,500 3,000 2,000
Principal Amount of Bonds in Trust per
Unit..................................... $ 1,000 $ 1,000 $ 1,000
Fractional Undivided Interest in Trust per
Unit..................................... 1/4,500 1/3,000 1/2,000
Minimum Value of Trust:
Trust Agreement may be Terminated if
Principal Amount is less than........... $2,250,000 $1,500,000 $1,000,000
Calculation of Public Offering Price per
Unit*:
Aggregate Offering Price of Bonds in
Trust................................... 4,395,210 2,879,216 1,847,100
========== ========== ==========
Divided by Number of Units............... 976.71 959.74 923.55
Plus: Sales Charge (3.70% for the
Intermediate Term Trust and 4.70% for
the California and Florida Trusts of the
Public Offering Price).................. 37.53 47.33 45.55
---------- ---------- ----------
Public Offering Price per Unit........... 1,014.24 1,007.07 969.10
Plus: Estimated Organization Expenses.... 2.50 2.50 2.50
Plus Accrued Interest*................... .85 .90 .85
---------- ---------- ----------
Total.................................... 1,017.59 1,010.47 972.45
========== ========== ==========
Sponsor's Initial Repurchase Price per
Unit (per Unit Offering Price of
Bonds)**................................. 976.71 959.74 923.55
Approximate Redemption Price per Unit (per
Unit Bid Price of Bonds)**............... 972.71 955.74 919.55
---------- ---------- ----------
Difference Between per Unit Offering and
Bid Prices of Bonds...................... 4.00 4.00 4.00
========== ========== ==========
Calculation of Estimated Net Annual Income
per Unit:
Estimated Annual Income per Unit......... 53.53 55.97 53.60
Less: Estimated Trustee's Annual Fee***.. 1.36 1.38 1.39
Less: Other Estimated Annual Expenses.... .57 .59 .61
---------- ---------- ----------
Estimated Net Annual Income per Unit..... 51.60 54.00 51.60
========== ========== ==========
Calculation of Monthly Income Distribution
per Unit:
Estimated Net Annual Income per Unit..... 51.60 54.00 51.60
Divided by 12............................ 4.30 4.50 4.30
Accrued interest from the day after the
Date of Deposit to the first record
date**................................... 1.72 1.80 1.72
First distribution per unit............... 1.72 1.80 1.72
Daily Rate (360-day basis) of Income
Accrual per Unit......................... .1433 .1500 .1433
Estimated Current Return based on Public
Offering Price****....................... 5.08% 5.35% 5.31%
Estimated Long-Term Return****............ 5.05% 5.35% 5.45%
</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-8
<PAGE>
TAX EXEMPT SECURITIES TRUST
PORTFOLIO SUMMARY AS OF JULY 19, 2000
<TABLE>
<CAPTION>
Intermediate
Term California Florida
Trust 35 Trust 176 Trust 93
------------ ------------ ------------
<S> <C> <C> <C>
Number of municipal bonds (from 11
states for the Intermediate Term
Trust; from California for the
California Trust; and from Florida for
the Florida Trust).................... 14 10 7
Number of bonds issued with "original
issue discount"....................... 6 8 6
Average life to maturity of the bonds
in the Trust (in years)............... 10.3 28.5 24.7
<CAPTION>
Percentages+ Percentages+ Percentages+
------------ ------------ ------------
<S> <C> <C> <C>
Percentage of bonds acquired from the
Sponsor (as sole underwriter, member
of underwriting syndicate or otherwise
from its own organization)............ 8.1% 8.5% 12.4%
General obligation bonds backed by the
taxing power of state issuer.......... 6.9% 0.0% 0.0%
Bonds not supported by the issuer's
power to levy tax..................... 93.1% 100.0% 100.0%
The bonds derived their income from the
following primary sources:
. educational facilities............... 15.3% 0.0% 0.0%
. hospital and health care facilities.. 48.1%* 63.0%* 49.4%*
. housing facilities................... 16.6% 0.0% 22.5%
. lease rental payments................ 0.0% 17.0% 0.0%
. power facilities..................... 2.6% 0.0% 0.0%
. tax allocation....................... 0.0% 8.3% 0.0%
. transportation facilities............ 10.5% 11.7% 28.1%*
The bonds in the trust are rated as
follows:
. Standard & Poor's
AAA.................................. 20.0% 21.2% 11.5%
AA................................... 0.0% 0.0% 12.0%
A.................................... 52.3% 62.1% 76.5%
---- ----- -----
Total.............................. 72.3% 83.3% 100.0%
==== ===== =====
. Moody's
Aaa.................................. 5.7% 0.0% 0.0%
A.................................... 22.0% 16.7% 0.0%
---- ----- -----
Total.............................. 27.7% 16.7% 0.0%
==== ===== =====
The following insurance companies have
insured the bonds in the trust as to
timely payment of principal and
interest:
. ACA.................................. 27.4% 27.8% 63.9%
. FSA.................................. 6.5% 9.4% 0.0%
. MBIA................................. 13.9% 11.7% 11.5%
---- ----- -----
Total.............................. 47.8% 48.9% 75.4%
==== ===== =====
</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-9
<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
--------------------------------
Intermediate
Term California Florida
Trust 35 Trust 176 Trust 93
------------ ---------- --------
<S> <C> <C> <C>
Salomon Smith Barney Inc. ..................... 4,400 2,500 2,000
388 Greenwich Street
New York, New York 10013
Southwest Securities, Inc...................... -- 500 --
45 Broadway
New York, New York 10006
CIBC Oppenheimer Corp. ....................... 100 -- --
Oppenheimer Tower
One World Financial Center
New York, New York 10281
----- ----- -----
Total.......................................... 4,500 3,000 2,000
===== ===== =====
</TABLE>
A-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and Unit Holders of
Tax Exempt Securities Trust, Intermediate Term Trust 35, California Trust 176
and Florida Trust 93:
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, Intermediate Term Trust 35, California Trust 176 and
Florida Trust 93 as of July 19, 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 July 19, 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, Intermediate Term
Trust 35, California Trust 176 and Florida Trust 93 as of July 19, 2000, in
conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
New York, New York
July 19, 2000
A-11
<PAGE>
TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, JULY 19, 2000
<TABLE>
<CAPTION>
TRUST PROPERTY
----------------------------------
Intermediate
Term California Florida
Trust 35 Trust 176 Trust 93
------------ ---------- ----------
<S> <C> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts
backed by letter of credit (1)........... $4,395,210 $2,879,216 $1,847,100
Accrued interest through the Date of Deposit
on underlying bonds (1)(2)................. 58,250 35,383 23,383
Cash (3).................................... 11,250 7,500 5,000
---------- ---------- ----------
Total................................... $4,464,710 $2,922,099 $1,875,483
========== ========== ==========
<CAPTION>
LIABILITIES AND INTEREST OF
UNIT HOLDERS
----------------------------------
<S> <C> <C> <C>
Liabilities:
Accrued interest through the Date of
Deposit on underlying bonds (1)(2)....... $ 58,250 $ 35,383 $ 23,383
Reimbursement to Sponsor for Organization
Costs (3)................................ 11,250 7,500 5,000
---------- ---------- ----------
69,500 42,883 28,383
---------- ---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest
outstanding (Intermediate Term Trust 35:
4,500; California Trust 176: 3,000;
Florida Trust 93: 2,000)
Cost to investors (4).................... 4,575,330 3,028,710 1,943,200
Less--Gross underwriting commission (5).. 168,870 141,994 91,100
Less--Organization Costs (3)............. 11,250 7,500 5,000
---------- ---------- ----------
Net amount applicable to investors....... 4,395,210 2,879,216 1,847,100
---------- ---------- ----------
Total................................... $4,464,710 $2,922,099 $1,875,483
========== ========== ==========
</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 July 19, 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 $11,000,000 which was deposited with the
Trustee for the purchase of $9,500,000 principal amount of Bonds in all of
the Trusts, pursuant to contracts to purchase such Bonds at the aggregate
cost of $9,121,526 plus $117,016 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 4,500
Units of the Intermediate Term Trust, 3,000 Units of the California Trust
and 2,000 Units of the Florida Trust, on the basis set forth in Part B,
"Public Offering--Offering Price."
(5) Sales charge of 3.70%, 4.70% and 4.70% computed on 4,500 Units of the
Intermediate Term Trust, 3,000 Units of the California Trust and 2,000
Units of the Florida Trust, respectively, on the basis set forth in Part
B, "Public Offering--Offering Price."
(6) The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of each
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide reasonable
assurance as to the integrity and reliability of, financial reporting of
each Trust. The Trustee is also responsible for all estimates (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-12
<PAGE>
TAX EXEMPT SECURITIES TRUST
INTERMEDIATE TERM TRUST 35--PORTFOLIO OF SECURITIES
AS OF JULY 19, 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. $ 300,000 Board of Education of AAA 2/15/08 @ 102 $ 284,310 5.200% $13,500
Jefferson County,
Alabama, School
Refunding Warrants, FSA
Insured, 4.50%
Due 2/15/2010
2. 500,000 City of Miami Beach, A SF 8/1/04 @ 100 477,505 5.500 24,000
Florida, Health
Facilities Authority,
Hospital Revenue Bonds,
South Shore Hospital and
Medical Center Project,
ACA Insured, 4.80% Due
8/1/2008
3. 300,000 Illinois Health A- 7/1/06 @ 102 307,722 5.840 18,750
Facilities Authority SF 7/1/06 @ 100
Revenue Bonds,
St. Elizabeth's Hospital
of Chicago, Inc., 6.25%
Due 7/1/2010
4. 140,000 Iowa Finance Authority, A1* 7/1/10 @ 100 142,618 5.750 8,400
Healthcare Revenue
Bonds, Genesis Medical
Center, 6.00% Due
7/1/2011
5. 360,000 Iowa Finance Authority, A1* 7/1/11 @ 100 364,014 5.850 21,600
Healthcare Revenue
Bonds, Genesis Medical
Center, 6.00% Due
7/1/2012
6. 500,000 Michigan State Hospital A3* 5/1/08 @ 101 460,620 6.200 26,500
Finance Authority, SF 5/1/09 @ 100
Hospital Revenue
Refunding Bonds, Hackley
Hospital Obligation
Group, 5.30% Due
5/1/2013
7. 290,000 The City of New York, A- 3/15/06 @ 101.5 303,671 5.001 16,675
General Obligation
Bonds, 5.75% Due
3/15/2008
8. 110,000 North Carolina Eastern A -- 114,593 5.500 6,737
Municipal Power Agency,
Power System Revenue
Refunding Bonds, ACA
Insured, 6.125% Due
1/1/2009
</TABLE>
A-13
<PAGE>
TAX EXEMPT SECURITIES TRUST
INTERMEDIATE TERM TRUST 35--PORTFOLIO OF SECURITIES
AS OF JULY 19, 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>
9. $ 150,000 The General Municipal A 11/1/09 @ 100 $ 151,603 5.500% $ 8,475
Authority of the Borough
of Harveys Lake,
Pennsylvania, College
Revenue Bonds, College
Misericordia Project,
ACA Insured, 5.65%
Due 5/1/2011
10. 250,000 Health Educational and Aaa* SF 1/1/06 @ 100 251,905 5.249 13,500
Housing Facility Board
of the City of Memphis,
Tennessee, Multifamily
Housing Revenue Bonds,
Hickory Pointe
Apartments Project, MBIA
Insured, 5.40% Due
7/1/2010
11. 500,000 Harris County, Texas, A SF 7/1/01 @ 100 479,220 5.750 25,750
Housing Finance
Corporation, Multifamily
Housing Revenue Bonds,
Windfern Pointe and
Waterford Place
Apartments Projects,
5.15% Due 7/1/2009
12. 250,000 Leander, Texas, AAA 8/15/03 @ 100 237,842 5.300 11,875
Independent School
District, General
Obligation Bonds, 4.75%
Due 8/15/2012
13. 350,000 North Central Texas, AAA 2/15/08 @ 102 357,732 5.450 20,125
Health Facility
Development Corporation
Revenue Bonds, Texas
Health Resources System,
MBIA Insured, 5.75%
Due 2/15/2012
14. 500,000 Pocahontas Parkway A 8/15/08 @ 102 461,855 5.950 25,000
Association, Virginia,
Route 895 Connector,
Toll Road Revenue Bonds,
5.00% Due 8/15/2011
---------- ---------- --------
$4,500,000 $4,395,210 $240,887
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-14
<PAGE>
TAX EXEMPT SECURITIES TRUST
CALIFORNIA TRUST 176--PORTFOLIO OF SECURITIES
AS OF JULY 19, 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. $ 250,000 California A 12/1/09 @ 101 $ 244,803 5.950% $ 14,500
Infrastructure and SF 12/1/25 @ 100
Economic Development
Bank Revenue Bonds, The
American Center for
Wine, Food and the Arts
Project, ACA Insured,
5.80% Due 12/1/2029
2. 250,000 California A 12/1/09 @ 101 245,162 5.900 14,375
Infrastructure and SF 12/1/20 @ 100
Economic Development
Bank Revenue Bonds, The
American Center for
Wine, Food and the Arts
Project, ACA Insured,
5.75% Due 12/1/2024
3. 250,000 California Health A2* 12/1/09 @ 101 249,750 6.132 15,312
Facilities Financing SF 12/1/20 @ 100
Authority Revenue Bonds,
Cedars-Sinai Medical
Center, ACA Insured,
6.125% Due 12/1/2030
4. 500,000 California Health A+ 8/15/10 @ 101 518,165 5.800 31,250
Facilities Financing SF 8/15/32 @ 100
Authority Revenue Bonds,
Sutter Health, 6.25% Due
8/15/2035
5. 300,000 California Health AAA 11/15/08 @ 101 271,488 5.650 15,000
Facilities Financing SF 11/15/29 @ 100
Authority Revenue Bonds,
UCSF--Stanford Health
Care, FSA Insured, 5.00%
Due 11/15/2031
</TABLE>
A-15
<PAGE>
TAX EXEMPT SECURITIES TRUST
CALIFORNIA TRUST 176--PORTFOLIO OF SECURITIES
AS OF JULY 19, 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>
6. $ 250,000 California Statewide A+ 8/15/09 @ 101 $ 230,777 5.800% $ 13,125
Communities Development SF 8/15/20 @ 100
Authority, Certificates
of Participation,
Childrens Hospital Los
Angeles, 5.25% Due
8/15/2029
7. 400,000 Airport Commission City AAA 5/1/08 @ 101 337,908 5.650 18,000
and County of San SF 5/1/24 @ 100
Francisco, California,
International Airport
Revenue Bonds, MBIA
Insured, 4.50% Due
5/1/2026
8. 250,000 Redevelopment Agency of A- 8/1/07 @ 102 239,235 5.850 13,750
the City of San Mateo, SF 8/1/18 @ 100
California, Merged Area
Tax Allocation Bonds,
5.50% Due 8/1/2022
9. 300,000 Valley Health System, A 5/15/06 @ 102 311,115 5.900 19,500
California, Hospital SF 5/15/16 @ 100
Revenue Bonds, Refunding
& Improvement Project,
ACA Insured, 6.50% Due
5/15/2025
10. 250,000 Washington Township, A2* 7/1/09 @ 101 230,813 5.800 13,125
California, Health Care SF 7/1/24 @ 100
District Revenue Bonds,
5.25% Due 7/1/2029
---------- ---------- --------
$3,000,000 $2,879,216 $167,937
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-16
<PAGE>
TAX EXEMPT SECURITIES TRUST
FLORIDA TRUST 93--PORTFOLIO OF SECURITIES
AS OF JULY 19, 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. $ 450,000 Clearwater Housing A 5/1/13 @ 100 $ 415,827 5.950% $ 24,075
Authority, Florida, SF 5/1/19 @ 100
Housing Revenue
Refunding Bonds, The
Hamptons at Clearwater,
ACA Insured, 5.35% Due
5/1/2024
2. 250,000 City of Gulf Breeze, AAA 6/1/08 @ 100 211,805 5.600 11,250
Florida, Capital Funding SF 10/1/23 @ 100
Revenue Bonds, MBIA
Insured, 4.50% Due
10/1/2027
3. 250,000 Halifax Hospital Medical A 4/1/08 @ 101 228,350 6.000 13,000
Center, Florida, Health SF 4/1/13 @ 100
Care Facilities Revenue
Bonds, Halifax
Management System, ACA
Insured, 5.20%
Due 4/1/2018
4. 250,000 Palm Beach County, AA- 12/1/09 @ 101 221,645 5.900 12,500
Florida, Health SF 12/1/14 @ 100
Facilities Authority,
Hospital Improvement
Revenue Bonds, BRCH
Corporation Obligated
Group, 5.00%
Due 12/1/2023
5. 300,000 Santa Rosa Bay Bridge A 7/1/06 @ 102 306,573 5.900 18,750
Authority, Florida, SF 7/1/23 @ 100
Revenue Bonds, ACA
Insured, 6.25% Due
7/1/2028
6. 250,000 South Lake County, A- 10/1/09 @ 101 232,510 6.300 14,500
Florida, Hospital SF 10/1/24 @ 100
District Revenue Bonds,
South Lake Hospital,
Inc., 5.80% Due
10/1/2034
---------- ---------- --------
$2,000,000 $1,847,100 $107,200
========== ========== ========
7. 250,000 Suwannee County, A 4/1/09 @ 101 230,390 5.950 13,125
Florida, Health Care SF 4/1/15 @ 100
Facilities Revenue
Refunding Bonds, Advent
Christian Village, Inc.,
Project, 5.25% Due
4/1/2019
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-17
<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 June 15,
2000 through July 19, 2000, with the settlement date on July 24, 2000. The
Profit to the Sponsor on Deposit totals $26,820 for the Intermediate Term
Trust, $30,174 for the California Trust and $18,570 for the Florida 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 July 19, 2000, the aggregate
bid price of the Bonds was $4,377,209 for the Intermediate Term Trust,
$2,867,216 for the California Trust and $1,839,100 for the Florida Trust.
A-18
<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.
An Intermediate Term Trust will have a dollar-weighted average portfolio
maturity of more than three years but not more than eleven years from the Date
of Deposit. A National Trust or a State Trust not specified as to term will
have a dollar-weighted average portfolio maturity of more than ten years from
the Date of Deposit.
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
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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
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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
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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 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 at the time of issuance 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 tax, 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 5% of the total
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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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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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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 and short-term capital gains
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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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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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 4.00% of the Public Offering Price (4.167% of the aggregate bid price
of the Bonds per Unit) for an Intermediate Term Trust and 5.00% of the Public
Offering Price (5.263% of the aggregate bid price of the Bonds per Unit) for a
National or State Trust. 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 National and State 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>
During the initial offering period, the sales charge and dealer concession
for the Intermediate Term 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 3.70% 3.842% $26.00
100-249 3.25% 3.359% $25.00
250-499 3.00% 3.093% $22.50
500-999 2.50% 2.564% $18.00
1,000 or more 2.00% 2.041% $13.00
</TABLE>
The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.
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.
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,
------------
+ 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.
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<PAGE>
(3) by appraisal, or (4) by any combination of the above. Such determinations
will be made each business day as of the Evaluation Time set forth in the
Summary of Essential Information. The term "business day," as used herein shall
exclude Saturdays, Sundays and any day on which the New York Stock Exchange is
closed. The difference between the bid and offering prices of the Bonds may be
expected to average approximately 1 1/2% of principal amount of the Bonds. In
the case of actively traded securities, the difference may be as little as 1/2
of 1%, and in the case of inactively traded securities such difference will
usually not exceed 3%. On the Date of Deposit for each Trust the aggregate
current offering price of such Bonds per Unit exceeded the bid price of such
Bonds per Unit by the amounts set forth under Summary of Essential Information.
Distribution of Units
During the initial public offering period Units of a Trust will be
distributed to the public at the Public Offering Price through the Underwriters
and dealers. The initial public offering period is 30 days unless all Units of
a Trust are sold prior thereto, in which case the initial public offering
period terminates with the sale of all Units. So long as all Units initially
offered have not been sold, the Sponsor may extend the initial public offering
period for up to four additional successive 30-day periods. Upon completion of
the initial public offering, Units which remain unsold or which may be acquired
in the secondary market may be offered by this Prospectus at the Public
Offering Price determined in the manner provided for secondary market sales.
It is the Sponsor's intention to qualify Units of a Trust for sale through
the Underwriters and dealers who are members of the National Association of
Securities Dealers, Inc. Units of a State Trust will be offered for sale only
in the State for which the Trust is named, except that Units of a New York
Trust will also be offered for sale to residents of the State of Connecticut,
the State of Florida and the Commonwealth of Puerto Rico. Units will initially
be sold to dealers at prices which represent a concession equal to the amount
designated in the tables under "Public Offering--Offering Price." The Sponsor
reserves the right to change the amount of the concession to dealers from time
to time. After the initial offering period the dealer concession is negotiated
on a case-by-case basis.
Sales will be made only with respect to whole Units, and the Sponsor reserves
the right to reject, in whole or in part, any order for the purchase of Units.
A purchaser does not become a Holder or become entitled to exercise the rights
of a Holder (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
B-15
<PAGE>
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 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
B-16
<PAGE>
commission for the remainder of the Units. In addition, the Sponsor may realize
profits or sustain losses in the amount of any difference between the cost of
the Bonds to a Trust and the purchase price of such Bonds to the Sponsor. Under
certain circumstances, an Underwriter may be entitled to share in such profits,
if any, realized by the Sponsor. The Sponsor may also realize profits or
sustain losses with respect to Bonds deposited in a Trust which were acquired
from its own organization or from underwriting syndicates of which it was a
member. During the initial public offering period the Underwriters also may
realize profits or sustain losses as a result of fluctuations after the Date of
Deposit in the offering prices of the Bonds and hence in the Public Offering
Price received by the Underwriters for Units. Cash made available to the
Sponsor prior to the anticipated first settlement date for the purchase of
Units may be used in the Sponsor's businesses to the extent permitted by
applicable regulations.
In maintaining a market for the Units the Sponsor will also realize profits
or sustain losses in the amount of any difference between the price at which
they buy such Units and the price at which they resell or redeem such Units.
RIGHTS OF HOLDERS
Certificates
Ownership of Units may be evidenced by registered certificates executed by
the Trustee and the Sponsor. Certificates are transferable by presentation and
surrender to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Holder may be required to pay $2.00 per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Holder must furnish
indemnity satisfactory to the Trustee and must pay such expenses as the Trustee
may incur. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distribution of Interest and Principal
Interest and principal received by a Trust will be distributed on each
monthly Distribution Date on a pro rata basis to Holders of record in such
Trust as of the preceding Record Date. All distributions will be net of
applicable expenses and funds required for the redemption of Units and, if
applicable, reimbursements to the Trustee for interest payments advanced to
Holders on previous Distribution Dates.
The Trustee will credit to the Interest Account of a Trust all interest
received by such Trust, including that part of the proceeds of any disposition
of Bonds of such Trust which represents accrued 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
B-17
<PAGE>
Information for a Trust. The Monthly Income Distribution will change as the
income and expenses of such Trust change and as Bonds are exchanged, redeemed,
paid or sold.
Normally, interest on the Bonds is paid on a semi-annual basis. Because Bond
interest is not received by a Trust at a constant rate throughout the year any
Monthly Income Distribution may be more or less than the amount credited to the
Interest Account as of the Record Date. In order to eliminate fluctuations in
Monthly Income Distributions resulting from such variances, the Trustee is
required by the Trust Agreement to advance such amounts as may be necessary to
provide Monthly Income Distributions of approximately equal amounts. The
Trustee will then be reimbursed, without interest, for any such advances from
funds available from the Interest Account on the next ensuing Record Date. If
all or a portion of the Bonds for which advances have been made subsequently
fail to pay interest when due, the Trustee may recoup such advances by reducing
the amount distributed per Unit in one or more Monthly Interest Distributions.
If Units are redeemed subsequent to such advances by the Trustee, each
remaining Holder will be subject to a greater pro rata reduction in his Monthly
Interest Distribution. To the extent it is unable to recoup advances from the
Interest Account, the Trustee is also entitled to withdraw from the Principal
Account. Funds which are available for future distributions, payments of
expenses and redemptions are in accounts which are non-interest bearing to
Holders and are available for use by The 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
B-18
<PAGE>
being distributed, expressed in each case as a dollar amount per Unit. In the
event that the issuer of any of the Bonds fails to make payment when due of any
interest or principal and such failure results in a change in the amount which
would otherwise be distributed as a monthly distribution, the Trustee will,
with the first such distribution following such failure, set forth in an
accompanying statement, the issuer and the Bond, the amount of the reduction in
the distribution per Unit resulting from such failure, the percentage of the
aggregate principal amount of Bonds which such Bond represents and information
regarding any disposition or legal action with respect to such Bond. Within a
reasonable time after the end of each calendar year, the Trustee will furnish
to each person who at any time during the calendar year was a Holder of record,
a statement (1) as to the Interest Account: interest received, deductions for
payment of applicable taxes and for fees and expenses of a Trust, redemptions
of Units and the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (2) as to the Principal Account: the dates of disposition of any
Bonds and the net proceeds received therefrom (excluding any portion
representing interest), deductions for payments of applicable taxes and for
fees and expenses of a Trust, redemptions of Units, and the balance remaining
after such distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (3) a list of the
Bonds held and the number of Units outstanding on the last business day of such
calendar year; (4) the Redemption Price per Unit based upon the last
computation thereof made during such calendar year; and (5) amounts actually
distributed during such calendar year from the Interest Account and from the
Principal Account. The accounts of a Trust shall be audited not less frequently
than annually by independent auditors designated by the Sponsor, and the report
of such auditors shall be furnished by the Trustee to Holders upon request.
The Trustee shall keep available for inspection by Holders at all reasonable
times during usual business hours, books of record and account of its
transactions as Trustee including records of the names and addresses of
Holders, certificates issued or held, a current list of Bonds in the Portfolio
of a Trust and a copy of the Trust Agreement.
Redemption of Units
Units may be tendered to the Trustee for redemption at its unit investment
trust office at 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
B-19
<PAGE>
funds available for redemption. Such sales could result in a sale of Bonds by
the Trustee at a loss. To the extent Bonds are sold the size and diversity of a
Trust will be reduced.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed or trading on that Exchange
is restricted or during which (as determined by the Securities and Exchange
Commission) an emergency exists as a result of which disposal or evaluation of
the underlying Bonds is not reasonably practicable, or for such other periods
as the Securities and Exchange Commission has by order permitted.
Computation of Redemption Price per Unit
The Redemption Price per Unit of a Trust is determined by the Trustee on the
basis of the bid prices of the Bonds in such Trust as of the Evaluation Time on
the date any such determination is made. The Redemption Price per Unit of a
Trust is each Unit's pro rata share, determined by the Trustee, of: (1) the
aggregate value of the Bonds in such Trust on the bid side of the market
(determined by the Evaluator as set forth below), (2) cash on hand in such
Trust (other than funds covering contracts to purchase Bonds), and accrued and
unpaid interest on the Bonds as of the date of computation, less (a) amounts
representing taxes or governmental charges payable out of such Trust, (b) the
accrued expenses of such Trust, and (c) cash held for distribution to Holders
of such Trust of record as of a date prior to the evaluation. As of the close
of the initial public offering period the Redemption Price per Unit will be
reduced to reflect the organization costs per Unit of a Trust. To the extent
that actual organization costs are less than the estimated amount, only the
actual organization costs will be deducted from the assets of a Trust.
Purchase by the Sponsor of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the Sponsor of any
tender of Units for redemption. So long as the Sponsor maintains a bid in the
secondary market, the Sponsor, prior to the close of business on the second
succeeding business day, will purchase any Units tendered to the Trustee. Such
a purchase by the Sponsor will be at the price so bid by making payment to the
Holder in an amount not less than the Redemption Price and not later than the
day on which the Units would otherwise have been redeemed by the Trustee.
The offering price of any Units resold by the Sponsor will be the Public
Offering Price 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-
B-20
<PAGE>
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 book-entry
B-21
<PAGE>
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.
B-22
<PAGE>
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.
B-23
<PAGE>
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
B-24
<PAGE>
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.
California Trust
Risk Factors--The following information is a brief summary of factors
affecting the economy of the State of California and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of California issuers; however, it has
not been updated. The Trust has not independently verified the information.
General Economic Conditions. The economy of the State of California
(sometimes referred to herein as the "State") is the largest among the 50
states and one of the largest in the world. This diversified economy has major
components in high technology, trade, entertainment, agriculture, tourism,
construction and services.
California's July 1, 1999 population of over 34 million people represented
over 12 percent of the total United States population.
California's population is concentrated in metropolitan areas. As of the
April 1, 1990 census, 96 percent of population resided in the 23 Metropolitan
Statistical Areas in the State. As of July 1, 1998, the five-county Los Angeles
area accounted for 49 percent of the State's population, with 16.0 million
residents. The 10-county San Francisco Bay Area represented 21%, with a
population of 7.0 million.
California: 1995-96 through 1998-99 Fiscal Years. From 1990-1993, the State
suffered through a severe recession. The State's financial condition improved
markedly during the 1995-96 through 1998-99 fiscal years (which year begins on
July 1 and ends on June 30), with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint based on the actions taken in earlier years. The State's cash
position also improved, and no external deficit borrowing has occurred over the
end of these four fiscal years. The last borrowing to spread out the repayment
of a budget deficit over the end of a fiscal year was the repayment of revenue
anticipation warrants in April 1996.
The economy grew strongly during these fiscal years, and as a result, the
General Fund (which is the primary revenue account of the State, holding all
revenues received by the State Treasury that are not required to be credited to
a special fund and earnings from investments not required to be allocated to
another fund) took in substantially greater tax revenues (around $2.2 billion
in 1995-96, $1.6 billion in 1996-97, $2.4 billion in 1997-98 and $1.7 billion
in 1998-99) than were initially planned when the budgets were enacted. These
additional funds were largely directed to school spending as mandated by
Proposition 98, and to make up shortfalls from reduced federal health and
welfare aid in 1995-96 and 1996-97 and particularly in 1998-99 to fund program
incentives. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance
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<PAGE>
estimated that the State's budget reserve totaled $639.8 million as of June 30,
1997 and $1.782 billion at June 30, 1998.
The 1998-99 Fiscal Year Budget. The following were major features of the 1998
Budget Act and certain additional fiscal bills enacted before the end of the
legislative session:
1. The most significant feature of the 1998-99 budget was agreement on a
total of $1.4 billion of tax cuts. The central element was a bill which
provided for a phased-in reduction of the Vehicle License Fee ("VLF"). Since
the VLF is transferred to cities and counties under existing law, the bill
provided for the General Fund to replace the lost revenues. Starting on January
1, 1999, the VLF has been reduced by 25 percent, at a cost to the General Fund
of approximately $500 million in the 1998-99 fiscal year and about $1 billion
annually thereafter.
In addition to the cut in VLF, the 1998-99 budget included both temporary and
permanent increases in the personal income tax dependent credit ($612 million
General Fund cost in 1998-99, but less in future years), a nonrefundable
renters tax credit ($133 million), and various targeted business tax credits
($106 million).
2. Proposition 98 funding for local schools and community colleges ("K-14")
was increased by $1.7 billion in General Fund moneys over revised 1997-98
levels, over $300 million higher than the minimum Proposition 98 guarantee. Of
the 1998-99 funds, major new programs included money for instructional and
library materials, deferred maintenance, support for increasing the school year
to 180 days and reduction of class sizes in Grade 9. The Budget also included
$250 million as repayment of prior years' loans to schools, as part of the
settlement of the California Teachers' Association v. Gould lawsuit.
3. Funding for higher education increased substantially above the actual
1997-98 level. General Fund support was increased by $340 million (15.6
percent) for the University of California and $267 million (14.1 percent) for
the California State University system. In addition, Community Colleges funding
increased by $300 million (6.6 percent).
4. The budget included increased funding for health, welfare and social
services programs. A 4.9 percent grant increase was included in the basic
welfare grants, the first increase in those grants in 9 years.
5. Funding for the judiciary and criminal justice programs increased by about
11 percent over 1997-98, primarily to reflect increased State support for local
trial courts and rising prison population.
6. Major legislation enacted after the 1998 Budget Act included new funding
for resources projects, a share of the purchase of the Headwaters Forest,
funding for the Infrastructure and Economic Development Bank ($50 million) and
funding for the construction of local jails. The State realized savings of $433
million from a reduction in the State's contribution to the State Teachers'
Retirement System in 1998-99.
Final tabulation of revenues and expenditures contained in the proposed 2000-
01 January Governor's Budget (the "Governor's Budget") reveals that stronger
than expected economic conditions in the State produced total 1998-99 General
Fund revenues of about $58.6 billion, almost $1.6 billion above the 1998 Budget
Act estimates. Actual General Fund expenditures were $57.8 billion, the amount
estimated at the 1998 Budget Act. Some of this additional revenue was directed
to K-14 schools pursuant to Proposition 98.
1999-00 Fiscal Year Budget. The final 1999-00 Budget Bill was adopted by the
Legislature on June 16, 1999, and was signed by the Governor on June 29, 1999
(the "1999 Budget Act"), meeting the Constitutional deadline for budget
enactment for only the second time in the 1990's.
The final 1999 Budget Act estimated general fund revenues and transfers of
$63.0 billion, and contained expenditures totaling $63.7 billion after the
Governor used his line-item veto to reduce the
C-2
<PAGE>
legislative Budget Bill expenditures by $581 million (both General Fund and
special fund). The 1999 Budget Act also contained expenditures of $16.1 billion
from special funds and $1.5 billion from bond funds. The Administration
estimated that the reserve fund would have a balance at June 30, 2000 of about
$880 million. Not included in this amount was an additional $300 million which
(after the Governor's vetoes) was "set aside" to provide funds for employee
salary increases (to be negotiated in bargaining with employee unions), and for
litigation reserves. The 1999 Budget Act anticipates normal cash flow borrowing
during the fiscal year.
The principal features of the 1999 Budget Act include the following:
1. Proposition 98 funding for kindergarten through grade 12 ("K-12") schools
was increased by $1.6 billion in General Fund moneys over revised 1998-99
levels, $108.6 million higher than the minimum Proposition 98 guarantee. Of the
1999-00 funds, major new programs included money for reading improvement, new
textbooks, school safety, improving teacher quality, funding teacher bonuses,
providing greater accountability for school performance, increasing preschool
and after school care programs and funding deferred maintenance of school
facilities. The Budget also includes $310 million as repayment of prior years'
loans to schools, as part of the settlement of the California Teachers'
Association v. Gould lawsuit.
2. Funding for higher education increased substantially above the actual
1998-99 level. General Fund support was increased by $184 million (7.3 percent)
for the University of California ("UC") and $126 million (5.9 percent) for the
California State University ("CSU") system. In addition, community colleges
funding increased by $324.3 million (6.6 percent). As a result, undergraduate
fees at UC and CSU will be reduced for the second consecutive year, and the
per-unit charge at community colleges will be reduced by $1.
3. The budget included increased funding of nearly $600 million for health
and human services.
4. About $800 million from the General Fund was directed toward
infrastructure costs, including $425 million in additional funding for the
Infrastructure Bank, initial planning costs for a new prison in the Central
Valley, additional equipment for train and ferry service, and payment of
deferred maintenance for state parks.
5. The Legislature enacted a one-year additional reduction of 10 percent of
the VLF for calendar year 2000, at a General Fund cost of about $250 million in
each of fiscal year 1999-00 and 2000-01 to make up lost funding to local
governments. Conversion of this one-time reduction to a permanent cut will
remain subject to the revenue tests in the legislation adopted last year.
Several other targeted tax cuts, primarily for businesses, were also approved,
at a cost of $54 million in 1990-00
6. A one-time appropriation of $150 million, to be split between cities and
counties, was made to offset property tax shifts during the early 1990's.
Additionally, an ongoing $50 million was
appropriated as a subvention to cities for jail booking or processing fees
charged by counties when an individual arrested by city personnel is taken to a
county detention facility.
The proposed 2000-01 Governor's Budget also reflects the latest estimated
costs or savings for the 1999-00 Fiscal Year as provided in various pieces of
legislation passed and signed after the 1999 Budget Act. The 1999-00 budget now
includes $730 million for various departments for enrollment, caseload and
population changes and $562 million for Smog Impact Fee refunds. On May 15,
2000, Governor Davis released his revised proposed budget (the "2000 May
Revision"), which shows revised 1999-00 revenues at a $70.9 billion or $5.8
billion higher than projections in the January Governor's Budget. Revised 1999-
00 expenditures are $67.3 billion.
Proposed 2000-01 Fiscal Year Budget. On January 10, 2000, Governor Davis
released his
C-3
<PAGE>
proposed budget for Fiscal Year 2000-01. The 2000-01 Governor's Budget
generally reflects that General Fund revenues for Fiscal Year 1999-00 will be
higher than projections made at the time of the 1999 Budget Act.
The 2000 May Revision projects General Fund revenues and transfers in 2000-01
of $73.7 billion, up from the January Budget forecast of $68.2 billion. This
includes anticipated payments from the tobacco litigation settlement of
approximately $389 million and the receipt of one-time revenue from the sale of
assets. In January, the Governor proposed $167 million in tax reduction
initiatives, with the 2000 May Revision adding at least $7.93 billion of
additional tax relief.
The 2000 May Revision proposes General Fund expenditures of $78.2 billion.
Included in the Budget are set-asides of $500 million for legal contingencies,
$200 million for various one-time legislative initiatives (up from $100 million
in the January Governor's Budget) and $592 million for a liquidation of
encumbrances reserve. At the time of the release of the 2000 May Revision, on
May 15, 2000, the Department of Finance projected the State's budget reserve
fund would have a balance of about $6.9 billion at June 30, 2000, compared to
the amount of $880 million projected at the time the 1999 Budget Act was signed
on June 29, 1999. The 2000 May Revision provides an additional $530 million to
increase the State's budget reserve fund at June 30, 2001 to $1.8 billion.
The 2000 May Revision establishes K-12 education as a top priority,
accounting for $30.5 billion or 39 percent of the 2000-01 General Fund
expenditures.
Future Budgets. It cannot be predicted what actions will be taken in the
future by the State Legislature and the Governor to deal with changing State
revenues and expenditures. The State budget will be affected by national and
State economic conditions and other factors.
Local Government. The primary units of local government in California are the
counties, ranging in population from 1,200 (Alpine) to over 9,600,000 (Los
Angeles). Counties are responsible for the provision of many basic services,
including indigent healthcare, welfare, courts, jails and public safety in
unincorporated areas. There are also about 470 incorporated cities and
thousands of other special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978, which reduced and limited the future
growth of property taxes and limited the ability of local governments to impose
"special taxes" (those devoted to a specific purpose) without two-thirds voter
approval. Counties, in particular, have had fewer options to raise revenues
than many other local government entities, and have been required to maintain
many services.
In the aftermath of Proposition 13, the State provided aid to local
governments from the General Fund to make up some of the loss of property tax
money's including taking over the principal responsibility for funding K-12
schools and community colleges. During the recession of the early 1990's, the
Legislature eliminated most of the remaining components of post-Proposition 13
aid to local government entities other than K-14 education districts by
requiring cities and counties to transfer some of their property tax revenues
to school districts. However, the Legislature also provided additional funding
sources (such as sales taxes) and reduced certain mandates for local services.
Since then the State has also provided additional funding to counties and
cities through such programs as health and welfare realignment, welfare reform,
trial court restructuring, the Citizens' Option for Public Safety Program
supporting local public safety departments and various other measures.
The 1999 Budget Act includes a $150 million one-time subvention from the
General Fund to local agencies for relief from the 1992 and 1993 property tax
shifts. Legislation has been passed, subject to voter approval at the election
in November 2000, to provide a more permanent payment to local
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<PAGE>
governments to offset the property tax shift. In addition, legislation was
enacted in 1999 to provide approximately $35.8 million annual relief to cities
based on 1997-98 costs of jail booking and processing fees paid to counties.
The entire statewide welfare system has been changed in response to the
change in federal welfare law enacted in 1996. Under the new basic state
welfare system, California Work Opportunity and Responsibility to Kids
("CalWORKs"), counties are given flexibility to develop their own plans,
consistent with State law, to implement Welfare-to-Work and to administer many
of its elements and their costs for administrative and support services are
capped at 1996-97 levels. Counties are also given financial incentives if, at
the individual county level or statewide, the CalWORKs program produces savings
associated with specified Welfare-to-Work outcomes; counties may also suffer
penalties for failing to meet federal standards. Under CalWORKs, counties will
still be required to provide "general assistance" aid to certain persons who
cannot obtain welfare from other programs.
Counties have been successful in earning performance incentive payments and
have earned amounts in excess of the available appropriation for 1998-99 and,
it is estimated, for 1999-00 as well. The Administration proposes to repeal or
modify the current incentive structure in 2000-01 to permit adequate funding
for other CalWORKs program demands in the future.
To date, the implementation of the CalWORKs program has continued the trend
of declining welfare caseloads. According to the 2000 May Revision, the 1999-00
average monthly CalWORKs caseload of 580,000 represents a decrease of 9.6
percent from 1998-99. For 2000-01, the caseload is projected to be 549,000 in
2000-01, down from a high of 921,000 cases in 1994-95, 8,000 below the January
Budget projection and a 5.3 percent decrease from the 1999-00 projection. The
longer-term impact of the new federal law and CalWORKs is being evaluated by
the RAND Corporation, with a series of reports to be furnished and the final
report due October 2001.
The 2000-01 CalWORKs budget reflects California's success in meeting the
federally-mandated work participation requirements for federal fiscal year
1998. With that goal being met, the federally-imposed maintenance-of-effort
("MOE") level for California is reduced from 80 percent of the federal fiscal
year 1994 baseline expenditures for the former Aid to Families with Dependent
Children ("AFDC") program ($2.9 billion) to 75 percent ($2.7 billion). It is
still uncertain if the State will meet the work participation requirements for
federal fiscal year 1999; however, due to program changes, it is expected that
California will meet the work participation goal in federal fiscal year 2000
and beyond. In addition, California will receive a Temporary Assistance for
Needy Families ("TANF") High Performance Bonus award of $45.5 million. This
one-time bonus is awarded to states for their successes in moving welfare
recipients to work and sustaining their participation in the workforce.
The 2000-01 Governor's Budget proposes expenditures that will continue to
meet, but not exceed, the federally-required $2.7 billion combined State and
county MOE requirement. Total CalWORKs-related expenditures are estimated to be
$7.2 billion for 1999-00 and $7.0 billion for 2000-01, including child care
transfer amounts for the Department of Education.
Historically, funding for the State's trial court system was divided between
the State and the counties. However, Chapter 850, Statutes of 1997, implements
a restructuring of the State's trial court funding system. In 1997-98, funding
for the courts, with the exception of costs for facilities, local judicial
benefits, and revenue collection, was consolidated at the State level. The
county contribution for both their general fund and fine and penalty amounts is
capped at the 1994-95 level and becomes part of the Trial Court Trust Fund,
which
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supports all trial court operations. The State assumes responsibility for
future growth in trial court funding. The consolidation of funding is intended
to streamline the operation of the courts, provide a dedicated revenue source,
and relieve fiscal pressure on the counties. Beginning in 1998-99, county
general fund contribution for court operations is reduced by $290 million, and
cities retained $62 million in fine and penalty revenue previously remitted to
the State. The General Fund reimbursed the $352 million revenue loss to the
Trial Court Trust Fund. The 1999 Budget Act included funds to further reduce
the county general fund contribution by an additional $96 million. The 2000 May
Revision proposes an augmentation of $8.6 million for Trial Court Funding to
fund the increased costs for existing services that counties provide to the
courts.
On November 5, 1996, voters approved Proposition 218, entitled the "Right to
Vote on Taxes Act," which incorporates new Articles XIII C and XIII D into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges
and assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIII C clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local governments and
their bonded debt which will require interpretation by the courts or the State
Legislature. Proposition 218 does not affect the State or its ability to levy
or collect taxes.
Constitutional and Statutory Limitations; Recent Initiatives; Pending
Legislation. Article XIII A of the California Constitution (which resulted from
the voter-approved Proposition 13 in 1978) limits the taxing powers of
California public agencies. Article XIII A provides that the maximum ad valorem
tax on real property cannot exceed one percent of the "full cash value" of the
property and effectively prohibits the levying of any other ad valorem tax on
real property for general purposes. However, on May 3, 1986, Proposition 46, an
amendment to Article XIII A, was approved by the voters of the State of
California, creating a new exemption under Article XIII A permitting an
increase in ad valorem taxes on real property in excess of one percent for
bonded indebtedness approved by two-thirds of the voters voting on the proposed
indebtedness. "Full cash value" is defined as "the county assessor's valuation
of real property as shown on the 1975-76 tax bill under "full cash value' or,
thereafter, the appraised value of real property when purchased, newly
constructed, or a change in ownership has occurred after the 1975 assessment."
The "full cash value" is subject to annual adjustment to reflect increases (not
to exceed two percent) or decreases in the consumer price index or comparable
local data, or to reflect reductions in property value caused by damage,
destruction or other factors.
Article XIII B of the California Constitution limits the amount of
appropriations of the State and of the local governments to the amount of
appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population and the services that local government have
financial responsibility for providing. To the extent that the revenues of the
State and/or local government exceed its appropriations limit over a two-year
period, 50 percent of the excess revenues must be allocated to Proposition 98
spending and 50 percent must be rebated to the public either directly or
through a tax decrease. Expenditures for voter-approved debt services are not
included in the appropriations limit. The Legislative Analyst's Office, in an
April 13, 2000 report, notes that if the extraordinary revenue increases
currently being experienced are sustained, then the spending limit could become
a fiscal constraint in 1999-00 and/or 2000-01.
On November 8, 1988, voters of the State approved Proposition 98, a combined
initiative
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constitutional amendment and statute called the "Classroom Instructional
Improvement and Accountability Act." Proposition 98 changed State funding of
public education below the university level and the operation of the State
appropriations funding, primarily by guaranteeing K-14 schools a minimum share
of General Fund revenues. Under Proposition 98 (as modified by Proposition 111,
which was enacted on June 5, 1990), K-14 schools are guaranteed the greater of
(a) in general, a fixed percent of General Fund revenues ("Test 1"), (b) the
amount appropriated to K-14 schools in the prior year, adjusted for changes in
the cost of living (measured as in California Constitution Article XIII B by
reference to State per capita personal income) and enrollment ("Test 2"), or
(c) a third test, which would replace Test 2 in any year when the percentage
growth in per capita General Fund revenues from the prior year plus one half of
one percent is less than the percentage growth in State per capita personal
income ("Test 3"). Under Test 3, schools would receive the amount appropriated
in the prior year adjusted for changes in enrollment and per capita General
Fund revenues, plus an additional small adjustment factor. If Test 3 is used in
any year, the difference between Test 3 and Test 2 would become a "credit" to
schools which would be the basis of payments in future years when per capita
General Fund revenue growth exceeds per capita personal income growth.
Legislation adopted prior to the end of the 1988-89 Fiscal Year, implementing
Proposition 98, determined the K-14 schools' funding guarantee under Test 1 to
be 40.3 percent of the General Fund tax revenues, based on 1986-87
appropriations. However, that percent has been adjusted to approximately 35
percent to account for a subsequent redirection of local property taxes, since
such redirection directly affects the share of General Fund revenues to
schools.
Proposition 98 permits the Legislature by two-thirds vote of both houses,
with the Governor's concurrence, to suspend the K-14 schools' minimum funding
formula for a one-year period. Proposition 98 also contains provisions
transferring certain State tax revenues in excess of the Article XIII B limit
to K-14 schools.
During the recession in the early 1990's, General Fund revenues for several
years were less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlement. By implementing these actions, per-pupil funding
from Proposition 98 sources stayed almost constant at approximately $4,220 from
Fiscal Year 1991-92 to Fiscal Year 1993-94.
In 1992, a lawsuit was filed, called California Teachers' Association v.
Gould, that challenged
the validity of these off-budget loans. The settlement of this case, finalized
in July 1996, provides, among other things, that both the State and K-14
schools share in the repayment of prior years' emergency loans to schools. Of
the total $1.76 billion in loans, the State will repay $935 million by
forgiveness of the amount owed, while schools will repay $825 million. The
State's share of the repayment will be reflected as an appropriation above the
current Proposition 98 base calculation. The schools' share of the repayment
will count as appropriations that count toward satisfying the Proposition 98
guarantee, or from "below" the current base. Repayments are spread over the
eight-year period of 1994-95 through 2001-02 to mitigate any adverse fiscal
impact.
Substantially increased General Fund revenues, above initial budget
projections, in the 1994-95 through 1998-99 Fiscal Years have resulted or will
result in retroactive increases in Proposition 98 appropriations from
subsequent Fiscal Years' budgets. Because of the State's increasing revenues,
per-pupil funding at the K-12 level has increased by about 50 percent from the
level in place in 1991-92, and is
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estimated in the 2000 May Revision at about $6,672 per average daily attendance
("ADA") in 2000-01. A significant amount of the "extra" Proposition 98 monies
in the last few years has been allocated to special programs, including an
initiative to increase the number of computers in schools throughout the State.
Furthermore, since General Fund revenue growth is expected to continue in 2000-
01, the Governor has also proposed new initiatives to improve student
achievement, provide better teacher recruitment and training, and provide
schools with advanced technology and the opportunity to form academic
partnerships to help them meet increased expectations. The 2000 May Revision
proposes total Proposition 98 spending of $42.7 billion in 2000-01, which
includes $1.1 billion in spending above the required guarantee level. This
augmentation will become a permanent part of the ongoing Proposition 98 base
amount.
At the November 1998 election, voters approved Proposition 2. This
Proposition required the General Fund to repay loans made from certain
transportation special accounts (such as the State Highway Account) at least
one per Fiscal Year, or up to 30 days after adoption of the annual Budget Act.
Since the General Fund may reborrow from the transportation accounts soon after
the annual repayment is made, the Proposition is not expected to have any
adverse impact on the State's cash flow.
Future Initiatives. Articles XIII A, XIII B, XIII C and XIII D were each
adopted as measures that qualified for the ballot pursuant to the State's
initiative process. From time to time, other initiative measures could be
adopted that could affect revenues of the State or public agencies within the
State.
Tobacco Litigation. In late 1998, the State signed a settlement agreement
with the four major cigarette manufacturers. The State agreed to drop its
lawsuit and not to sue in the future. Tobacco manufacturers agreed to billions
of dollars in payments and restrictions in marketing activities. Under the
settlement, the manufacturers will pay California governments a total of
approximately $25 billion over a period of 25 years. In addition, payments of
approximately $1 billion per year will continue in perpetuity. Under the
settlement, half of the moneys will be paid to the State and half to local
governments (all counties and the cities of San Diego, Los Angeles, San
Francisco and San Jose). The State's revised 1999-00 Budget includes receipt of
$517 million of settlement money to the General Fund. The Governor's Budget for
2000-01 projects receipt of $388 million of settlement money to the General
Fund.
The specific amount to be received by the State and local governments is
subject to adjustment. Details in the settlement allow reduction of the
companies' payments because of federal government actions, or reductions in
cigarette sales. Settlement payments can increase due to inflation or increases
in cigarette sales. The "second initial" payment, received in December 1999,
was 14 percent lower than the base settlement amount due to reduced sales.
Future payment estimates have been reduced by a similar percentage. In the
event that any of the tobacco companies goes into bankruptcy, the State could
seek to terminate the agreement with respect to those companies filing
bankruptcy actions, thereby reinstating all claims against those companies. The
State may then pursue those claims in the bankruptcy litigation, or as
otherwise provided by law. Also, several parties have brought a lawsuit
challenging the settlement and seeking damages. (See "Pending Litigation"
below.)
Pending Litigation. The State of California is a party to numerous legal
proceedings, many of which normally occur in governmental operations. In
addition, the State is involved in certain other legal proceedings that, if
decided against the State might require the State to make significant future
expenditures or impair future revenue sources. The litigation summarized below
does not include litigation pending against local governmental agencies.
Because of the prospective nature of these proceedings, it is not presently
possible to predict the outcome of such litigation or estimate the
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potential impact on the ability of the State to pay debt service costs on its
obligations. The litigation summaries presented below are based primarily upon
one or more publicly available offering statements relating to debt offerings
of California issuers and other readily available public information sources.
The Trust has not independently verified the information. Some of the more
significant lawsuits pending against the State are described below.
On December 24, 1997, a consortium of California counties filed a test claim
with the Commission on State Mandates (the "Commission") asking the Commission
to determine whether the property tax shift from counties to school districts
beginning in 1993-94, is a reimbursable state-mandated cost. The test claim was
heard on October 29, 1998, and the Commission found in favor of the State. In
October 1999, the Superior Court of Sonoma County overturned the Commission's
decision. The State has appealed. Should the final decision on this matter be
in favor of the counties, the impact to the State General Fund could be as high
as $10.0 billion. In addition, there would be an annual Proposition 98 General
Fund cost of at least $3.75 billion. This cost would grow in accordance with
the annual assessed value growth rate.
In January of 1997, California experienced major flooding in six different
areas with preliminary estimates of property damage of approximately $1.6 to
$2.0 billion. In McMahon v. the State of California, a substantial number of
plaintiffs have joined suit against the State, local agencies, and private
companies and contractors seeking compensation for the damages they suffered as
a result of the 1997 flooding. After various pre-trial proceedings, the State
filed its answer to the plaintiffs' complaint in January 2000. The State is
defending the action.
The State is a defendant in Ceridian Corporation v. Franchise Tax Board, a
suit that challenges the constitutionality of a Revenue & Taxation Code section
that limits deductions for insurance dividends to those dividends paid from
earnings previously subject to California taxation. On August 13, 1998, the
trial court issued a judgment against the Franchise Tax Board. The Franchise
Tax Board has appealed the judgment. Briefing has been completed. The State has
taken the position that, if the challenged section of the Revenue & Taxation
Code is struck down, all deductions relating to dividends would be eliminated
and the result would be additional income to the State. Plaintiffs, however,
contend that if they prevail, the deduction should be extended to all
dividends, which would result in a one-time liability for open years of
approximately $60 million, including interest, and an annual revenue loss of
approximately $10 million. No date has yet been set for oral argument.
The State is also a defendant in First Credit Bank etc. v. Franchise Tax
Board, which challenges a Revenue & Taxation Code section similar to the one
challenged in the Ceridian case, but applicable to a different group of
corporate taxpayers. The State's motion for summary judgment is currently
pending and a trial date has been set in April 2000. A decision in the Ceridian
case could impact the outcome of this case. The State has taken the position
that, if the challenged section of the Revenue & Taxation Code is struck down,
all deductions relating to dividends would be eliminated and the result would
be additional income to the State. Plaintiffs, however, contend that if they
prevail, the deduction should be extended to all dividends that would result in
a one-time liability for open years of approximately $385 million, including
interest, and an annual revenue loss of approximately $60 million.
Plaintiffs in County of San Bernardino v. Barlow Respiratory Hospital and
related actions seek mandamus relief requiring the State to retroactively
increase out-patient Medi-Cal reimbursement rates. Plaintiffs have estimated
the damages to be several hundred million dollars. The
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State is defending these cases, as well as related federal cases addressing the
calculation of Medi-Cal reimbursement rates in the future.
The State is involved in a lawsuit, Thomas Hayes v. Commission on State
Mandates, related to state-mandated costs. The action involves an appeal by the
Director of Finance from a 1984 decision by
the State Board of Control (now succeeded by the Commission on State Mandates).
The Board of Control decided in favor of local school districts' claims for
reimbursement for special education programs for handicapped students. The case
was then brought to the trial court by the State and later remanded to the
Commission for redetermination. The Commission expanded the claim to include
supplemental claims filed by several other educational institutions. To date,
the Legislature has not appropriated funds. The Commission issued a decision in
December 1998 determining that a small number of components of the State's
special education program are state-mandated local costs. The administrative
proceeding is in the "parameters and guidelines" stage where the Commission is
considering whether and to what extent the costs associated with the state-
mandated components of the special education program are offset by funds that
the State already allocates to that program. The State's position is that all
costs are offset by existing funding. The State has the option to seek judicial
review of the mandate finding. Potential liability of the State, if all
potentially eligible school districts pursue timely claims, has been estimated
by the Department of Finance to be in excess of $1.5 billion, if the State is
not credited for its existing funding of the program. Currently a cost-related
hearing has been postponed to June 2000, while the parties attempt settlement.
The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J.B. Stringfellow, Jr., et al., the State is seeking recovery for
post costs of cleanup of the site, a declaration that the defendants are
jointly and severally liable for future costs, and an injunction ordering
completion of the cleanup. However, the defendants have filed a counterclaim
against the State for alleged negligent acts, resulting in significant findings
of liability against the State as owner, operator, and generator of wastes
taken to the site. The State has appealed the rulings. Present estimates of the
cleanup range from $400 million to $600 million. Potential State liability
falls within this same range. However, all or a portion of any judgment against
the State could be satisfied by recoveries from the State's insurance carriers.
The State has filed a suit against certain of these carriers. The trial is
expected to begin in early 2001.
The State is a defendant in Paterno v. State of California, a coordinated
action involving 3,000 plaintiffs seeking recovery for damages caused by the
Yuba River flood of February 1986. The appellate court affirmed the trial court
finding of liability in inverse condemnation and awarded damages of $500,000 to
a sample of plaintiffs. Potential liability to the remaining 300
plaintiffs, from claims filed, ranges from $800 million to $1.5 billion. In
1992, the State and plaintiffs filed appeals. In August 1999, the court of
appeal issued a decision reversing the trial court's judgment against the State
and remanding the case for retrial on the inverse condemnation cause of action.
The California Supreme Court denied plaintiffs' petition for review. No trial
date has been set, but a trial management conference has been set for May 26,
2000.
On June 24, 1998, plaintiffs in Howard Jarvis Taxpayers Association et al. v.
Kathleen Connell filed a complaint for certain declaratory and injunctive
relief challenging the authority of the State Controller to make payments from
the State Treasury in the absence of a state budget. On July 21, 1998, the
trial court issued a preliminary injunction prohibiting the State Controller
from paying moneys from the State Treasury for Fiscal Year 1998-99, with
certain limited exceptions, in the absence of a state budget. The preliminary
injunction, among other things, prohibited the State Controller from making any
payments pursuant to
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any continuing appropriation. On July 22 and 27, 1998, various employee unions
which had intervened in the case appealed the trial court's preliminary
injunction and asked the Court of Appeal to stay the preliminary injunction. On
July 28, 1998, the Court of Appeal granted the unions' requests and stayed the
preliminary injunction pending the Court of Appeal's decision on the merits of
the appeal. On August 5, 1998, the Court of Appeal denied the plaintiffs'
request to reconsider the stay. Also on July 22, 1998, the State Controller
asked the California Supreme Court to immediately stay the trial court's
preliminary injunction and to overrule the order granting the preliminary
injunction on the merits. On July 29, 1998, the Supreme Court transferred the
State Controller's request to the Court of Appeal. The matters are now pending
before the Court of Appeal. Briefs are being submitted; no date has yet been
set for oral argument.
The State is involved in two refund actions, Cigarettes Cheaper!, et al. v.
Board of Equalization, et al., and California Assn. of Retail Tobacconists
(CART), et al. v. Board of Equalization, et al., that challenge the
constitutionality of Proposition 10, approved by the voters in 1998. Plaintiffs
allege that Proposition 10, which increases the excise tax on tobacco products,
violates 11 sections of the California Constitution and related provisions of
law. Plaintiffs Cigarettes Cheaper! seek declaratory and injunctive relief and
a refund of over $4 million. The CART case, filed by retail tobacconists in San
Diego, seeks a refund of $5 million. The State is contesting these cases. The
State has filed a motion for judgment on the pleadings and several plaintiffs
have filed a motion for summary judgment. These various motions are pending
before the trial court. If the statute is declared unconstitutional, exposure
may include the entire $750 million collected annually with interest.
The State is involved in two cases challenging the constitutionality of the
interest offset provisions of the Revenue and Taxation Code: Hunt-Wesson, Inc.,
v. Franchise Tax Board and F.W. Woolworth Co. and Kinney Shoe Corporation v.
Franchise Tax Board. In both cases, the Franchise Tax Board prevailed in the
California court of appeal and the California Supreme Court denied taxpayers'
petitions for review. In both cases, the United States Supreme Court granted
certiorari. On February 22, 2000, the United States Supreme Court reversed and
remanded the Hunt-Wesson case to the California court of appeal for further
proceedings. Although the Court did not take similar action in the Woolworth
Co. case, it is anticipated that it will do so. The Franchise Tax Board
recently estimated that the adverse decisions in these cases will result in a
reduction in state revenues of approximately $15 million annually, with past
year collection and interest exposure of approximately $95 million.
Guy F. Atkinson Company of California v. Franchise Tax Board is a corporation
tax refund action involving the solar energy system tax credit provided for
under the Revenue & Taxation Code. The case went to trial in May 1998 and the
trial court entered judgment in favor of the Franchise Tax Board. The taxpayer
has filed an appeal to the California Court of Appeal and briefing is
completed. The Franchise Tax Board estimates that the cost would be $150
million annually, if the plaintiff prevails. Allowing refunds for all open
years would entail a refund of at least $500 million.
Jordan, et. al. v. Department of Motor Vehicles, et al., challenges the
validity of the Vehicle Smog Impact Fee, a $300 fee that is collected by the
Department of Motor Vehicles from vehicle registrants when a vehicle without a
California new-vehicle certification is first registered in California. The
plaintiffs contend that the fee violates the interstate commerce and equal
protection clauses of the United States Constitution as well as Article XIX of
the State Constitution. In October 1999, the court of appeal upheld a trial
court judgment for the plaintiffs and the State has declined to appeal further.
Although the refunds through the court actions could be limited by a three-year
statute of limitations, with a potential liability of about $350 million, the
Governor has proposed refunding fees
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collected back to the initiation of these fees in 1990. The 2000-01 Governor's
Budget proposes expenditures of $562 million as a supplemental appropriation in
1999-00 to pay these claims.
PTI, Inc. et al. v. Philip Morris, et al. was filed by five distributors in
the cigarette import-/re-entry business, seeking to overturn the tobacco Master
Settlement Agreement (MSA) entered between 46 states and the tobacco industry
in November 1998. The primary focus of the complaint is the provision of the
MSA encouraging participating states to adopt a statute requiring
nonparticipating manufacturers to either become participating manufacturers and
share the financial obligations under the MSA or pay money into an escrow
account. Plaintiffs seek compensatory and punitive damages against the State
and State officials and an order placing tobacco settlement funds into a trust
to be administered by the court for the treatment of medical expenses of
persons injured by tobacco products. Plaintiffs have filed an amended complaint
and the State has filed a motion to dismiss the amended complaint. A hearing
will be held on the State's motion to dismiss in May 2000. The potential fiscal
impact of an adverse ruling is largely unknown, but could exceed the full
amount of the settlement (estimated to be $1 billion annually, of which 50
percent will go directly to the State's General Fund and the other 50 percent
directly to the State's 58 counties and 4 largest cities).
In FORCES Action Project, et al. v. State of California, et al., various
smokers' rights groups challenge the tobacco settlement as it pertains to
California, Utah and the City and County of San Francisco. Plaintiffs assert a
variety of constitutional challenges, including that the settlement represents
an unlawful tax on smokers. Motions to dismiss by all defendants, including the
tobacco companies, were eventually converted to summary judgment motions by the
court and heard on September 17, 1999. On January 5, 2000, the court dismissed
the complaint for lack of subject matter jurisdiction because the plaintiffs
lacked standing to sue. The court also concluded that the plaintiffs' claims
against the State and its officials are barred by the 11th Amendment.
Plaintiffs have appealed. Briefing is expected to be complete by July 2000.
Luis Bolduc, et al. v. State of California, et al. is a class action filed on
July 13, 1999 by six Medi-Cal beneficiaries who have received medical treatment
for smoking-related diseases. Plaintiffs allege the State owes them an
unspecified portion of the tobacco settlement monies under a federal regulation
that requires a state to turn over to an injured Medicaid beneficiary any
monies the State recovers from a third-party tortfeasor in excess of the costs
of the care provided. The State moved to dismiss the complaint on September 8,
1999. On February 29, 2000, the court denied the State's motion to dismiss, but
struck the Plaintiffs' class action allegations. The State intends to appeal
that portion of the court's order denying its motion to dismiss.
Arnett v. California Public Employees Retirement System, et al. was filed by
seven former employees of the State of California and local agencies, seeking
back wages, damages and injunctive relief. Plaintiffs are former public safety
members who began employment after the age of 40 and are recipients of
Industrial Disability Retirement ("IDR") benefits. Plaintiffs contend that the
formula that determines the amount of IDR benefits violates the federal Age
Discrimination in Employment Act of 1967 ("ADEA"). Plaintiffs contend that, but
for their ages at hire, they would receive increased monthly IDR benefits
similar to their younger counterparts who began employment before the age of
40. The California Public Employees' Retirement System has estimated the
liability to the State as approximately $315.5 million, if plaintiffs prevail.
The District Court dismissed the complaint for failure to state a claim. On
August 17, 1999, the Ninth Circuit Court of Appeals reversed the District
Court's dismissal of the complaint. The State sought further review in the
United States Supreme Court. On January 11, 2000, the United States Supreme
Court in Kimel v. Florida Board of Regents, held that Congress did not abrogate
the sovereign
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immunity of the states when it enacted the ADEA. Thereafter, on January 18,
2000, the Supreme Court granted the petition for writ of certiorari in Arnett,
vacated the judgment of the Ninth Circuit, denied various parties' petitions
for a rehearing and remanded the case to the Ninth Circuit District Court for
further proceedings consistent with Kimel. It now appears that the District
Court will dismiss the State defendants from the lawsuit.
California Taxes--
In the opinion of Messrs. Brown & Wood LLP, special California counsel on
California tax matters, under existing law:
The California Trust will not be treated as an association taxable as a
corporation. Accordingly, interest on Bonds received by the California
Trust that is exempt from personal income taxes imposed by or under the
authority of the State of California will be treated for California income
tax purposes in the same manner as if received directly by the Unit
Holders.
Each Unit Holder of the California Trust will recognize gain or loss when
the California Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or upon the Unit Holder's sale or other
disposition of a Unit. The amount of gain or loss for California income tax
purposes will generally be calculated pursuant to the Code, certain
provisions of which are incorporated by reference under California law.
Florida Trust
Risk Factors --
Population. In 1980, Florida was the seventh most populous state in the U.S.
Florida has grown dramatically since then and as of April 1, 1998, ranks fourth
with an estimated population of 15 million.
. In 1998, about 232,000 more new residents moved into Florida then moved
out.
. The U.S. average population increase since 1990 is about 1.0% annually,
while Florida's average increase is about 1.9% annually.
. Florida continues to be one of the fastest growing of the largest states.
Florida's strong population growth is one reason Florida's economy is
performing better than the U.S. as a whole. In addition to attracting senior
citizens to Florida as a place for retirement, Florida is also recognized as
attracting a significant number of individuals of working age (18-64).
. In recent years, Florida's prime working age population (18-44) has grown
at an average annual rate of more than 2.0%.
. More than 60% of Florida's total population is at the working age (18-
64). This share is not expected to change appreciably into the twenty-
first century.
Income. According to the U.S. Department of Commerce and the Florida Consensus
Economic Estimating Conference, personal income in Florida has been growing
strongly the last several years and has generally performed better than the
U.S. as a whole and the southeast U.S. in particular. This is due to the fact
that Florida's population has been growing at a very strong pace and, since the
early 70's, its economy has diversified providing a broader economic base.
. Florida's real income per person has tracked closely with the U.S.
average and has tracked above the southeast.
Florida has a proportionately greater retirement age population than other
states. As a result, property, income (dividends, interest, and rent), and
transfer payments (Social Security and pension benefits, among other sources of
income) are relatively more important sources of income to persons residing in
Florida. Transfer payments (Social Security and pension benefits, among other
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sources of income) are typically less sensitive to the ups and downs of the
economy than wages and salaries and other employment income. Transfer payments
(Social Security and pension benefits, and other sources of income),
therefore, act as a stabilizing force in weak economic periods.
The personal income of residents of the various states in the U.S. is
frequently used to make comparisons among the various states. However, using
personal income to compare Florida to other states can be misleading.
Florida's personal income
is systematically underestimated. Contributions by employers to employees'
pension, profit sharing, and other retirement plans are included in personal
income of that employee while the employee is working and earning wages and
salary. When those same employees retire, to avoid double accounting,
retirement payments to them from those retirement plans are excluded in
computing personal income. Florida retirees are more likely to be collecting
retirement benefits that they earned in a state other than Florida. As a
result, Florida personal income is underestimated.
. Florida's personal income per person in 1998 was $25,852.
. The U.S. average personal income per person was slightly higher at
$26,412.
. Personal income per person in the southeast United States was
significantly lower at $23,725.
. Total Florida real personal income is forecasted to increase 4.9% in the
fiscal year ended June 30, 1999, and 3.5% in the fiscal year ending June
30, 2000.
. Florida real personal income per person is projected to increase 3.1% in
the fiscal year ended June 30, 1999, and 1.8% in the fiscal year ending
June 30, 2000.
. The Florida economy appears to be growing in line with, but stronger
than, the U.S. economy; however, the Florida economy is expected to grow
more slowly in the fiscal year ending June 30, 2000, than in the fiscal
year ended June 30, 1999.
Employment.
. Since 1992, Florida's population has increased an estimated 11.7%, while
the number of employed persons in Florida increased 15.0%.
. In the same period, Florida's total non-farm employment has grown
approximately 24.6%, while U.S. non-farm jobs increased 15.9%.
. Florida is gradually becoming less dependent on employment related to
construction, agriculture, or manufacturing, and more dependent on
employment related to trade and services. This has also contributed to
Florida's strong economic performance.
Presently, services constitute 36% and trade 25.5% of Florida's total non-
farm jobs. The U.S., however, has a greater percentage of manufacturing jobs
than Florida. Manufacturing jobs tend to pay higher wages, but service jobs
can also pay well and tend to be less sensitive to swings in the business
cycle. Florida has a concentration of manufacturing jobs in high-tech and high
value-added sectors, such as electrical and electronic equipment, as well as
printing and publishing. These type of manufacturing jobs tend to be less
cyclical.
. Florida's unemployment rate throughout the 1980's was consistently lower
than that for the U.S.
. In the early 1990's Florida's unemployment rate was higher than that of
the U.S.
. In current years, Florida's unemployment rate has again generally fallen
below that of the U.S.
. Florida's unemployment rate was 4.3% during 1998.
. The U.S. unemployment rate was 4.5% during 1998.
C-14
<PAGE>
. It is estimated that Florida's unemployment rate will be 4.2% in the
fiscal year ended June 30, 1999, and 4.4% in the fiscal year ending June
30, 2000.
Florida's economy is expected to grow at a moderate rate along with the U.S.,
but is expected to out perform the U.S. as a whole.
. Total non-farm employment in Florida is expected to increase 3.4% for the
fiscal year ended June 30, 1999 and 2.9% for the fiscal year ending June
30, 2000. Trade and services, the two largest employment sectors, account
for more than half of the total non-farm employment in Florida.
. Employment in the service sectors should experience an increase of 5.5%
for the fiscal year ended June 30, 1999, while growing 4.4% for the
fiscal year ending June 30, 2000. Trade is expected to expand 2.8% for
the fiscal year ended June 30, 1999, and 2.8% for the fiscal year ending
June 30, 2000.
. The service sector is now Florida's largest employment category.
Construction. In the past, Florida's economy has been highly dependent on the
construction industry and construction related manufacturing. This dependency
has declined in recent years and continues to decline as a result of continued
diversification of Florida's economy. For example, in 1973, total contract
construction employment as a share of total non-farm employment was about 10%,
in the late 1980's, the share had edged downward to 7.5%, and in 1998, the
share was only 5.3%. This trend is expected to continue as Florida's economy
continues to diversify. Florida, nevertheless, has a dynamic construction
industry, with the percentage of housing starts increasing in 1998 by 11.1%,
and construction jobs overall increasing by 5.1%, due to low interest rates and
favorable economic conditions.
A driving force behind Florida's construction industry has been Florida's
rapid rate of population growth. Although Florida currently is the fourth most
populous state, its annual population growth is now projected to slow somewhat
as the number of people moving into Florida is expected to remain over 200,000
a year during the next decade. This population trend should provide fuel for
business and home builders to keep construction activity lively in Florida in
the next few years. Moreover, recent federal tax reforms reducing capital gains
realized on the sale of homes may increase the purchases of second, pre-
retirement homes in Florida.
. Single and multi-family housing starts in Florida for the fiscal year
ended June 30, 1999, are projected to reach a combined level of 144,000,
decreasing slightly to 143,000 for the fiscal year ending June 30, 2000.
. Total construction expenditures in Florida are forecasted to increase
8.6% for the fiscal year ended June 30, 1999, and increase 2.5% for the
fiscal year ending June 30, 2000.
. Single and multi-family housing starts in Florida are projected to
account for about 9% of all the housing starts in the U.S. for the fiscal
year ended June 30, 1999 and 9.53% of all housing starts in the U.S. for
the fiscal year ending June 30, 2000.
Tourism. Tourism is one of Florida's most important industries. Approximately
48.7 million tourists visited Florida in 1998, a 3.7% increase over 1997.
Tourists in Florida are, in essence, additional residents for purposes of
determining Florida tax revenues. Florida's tourist industry over the years has
become more sophisticated, attracting visitors year-round and, to a degree,
reducing its seasonality. Visitors to Florida tend to arrive slightly more by
air than by auto.
. Tourist arrivals to Florida are forecasted to increase by 2.0% for the
fiscal year ended
C-15
<PAGE>
June 30, 1999, and 1.7% for the fiscal year ending June 30, 2000.
. Tourist arrivals to Florida by air are expected to increase by 3.2% for
the fiscal year ended June 30, 1999, and increase by 3.9% for the fiscal
year ending June 30, 2000.
. Tourist arrivals by car are expected to increase by 0.6% for the fiscal
year ended June 30, 1999, and decrease 1.0% for the fiscal year ending
June 30, 2000.
By June 30, 1999, 49.7 million domestic and international tourists are
expected to have visited Florida. For the fiscal year ending June 30, 2000,
about 50.6 million tourists are expected to visit Florida.
Revenues and Expenses. Estimated General Revenue plus Working Capital and
Budget Stabilization funds available to Florida for the fiscal year ended June
30, 1999, total $19,481.8 million, a 5.2% increase over the fiscal year ended
June 30, 1998. Of the total General Revenue plus Working Capital and Budget
Stabilization funds available to Florida, $17,779.5 million of that is
Estimated Revenues and represents an increase of 5.0% over the previous year's
Estimated Revenues. With effective General Revenues plus Working Capital Fund
and Budget Stabilization appropriations at $18,220.0 million, including $100.9
million transferred to the Budget Stabilization Fund, unencumbered reserves at
the fiscal year ended June 30, 1999, are estimated at $1,360.7 million.
Estimated General Revenue plus Working Capital and Budget Stabilization funds
available to Florida for the fiscal year ending June 30, 2000, total $20,133.9
million, a 3.3% increase over the fiscal year ended June 30, 1999. The
$18,555.2 million in Estimated Resources represents an increase of 4.4% over
the previous year's Estimated Revenues.
General Revenues and Expenses
For the fiscal year ended June 30, 1997, approximately 67% of Florida's total
direct revenue to its four operating funds were derived from Florida taxes and
fees, with Federal grants and other special revenue accounting for the balance.
The large majority of Florida General Revenue Funds available to Florida for
the fiscal year ended June 30, 1997, were made up of the following taxes:
. Sales and use tax--68%
. Corporate income tax--8%
. Intangible personal property tax--4%
. Beverage tax--3%
. Estate tax--3%
During the same fiscal year ended June 30, 1997, the large majority of
expenditures from Florida's General Revenue Fund were as follows:
. Education--53%
. Health and welfare--26%
. Public Safety--14%
Florida Sales and Use Tax
Florida's sales and use tax (6%) currently accounts for Florida's single
largest source of tax receipts. Slightly less than 10% of Florida's sales and
use tax is designated for local governments and is distributed to the
respective counties in which collected for use by the counties, and the
municipalities in such counties. In addition to this money from the State of
Florida, local governments may (by a vote of the residents) assess a 0.5% or a
1.0% discretionary sales surtax within their county. Proceeds from this local
option sales tax are used for funding local infrastructure programs and
acquiring land for public recreation or conservation or protection of natural
resources as provided under applicable Florida law. Certain charter counties
have other taxing powers in addition, and non-consolidated counties with a
population in excess of 800,000 may levy a local option sales tax to fund
indigent health care. The indigent health care tax alone cannot exceed 0.5% and
when combined with the infrastructure surtax cannot exceed 1.0%.
C-16
<PAGE>
. For the fiscal year ended June 30, 1997, Florida sales and use tax
receipts (exclusive of the tax on gasoline and special fuels) totaled
$12,089 million, an increase of 5.5% over the fiscal year ended June 30,
1996, collections.
Alcoholic Beverage Tax
Florida imposes an alcoholic beverage, wholesale tax (excise tax) on beer,
wine, and liquor. This tax is one of Florida's major tax sources. Ninety-eight
percent of the revenues collected from
this tax are deposited into Florida's General Revenue Fund.
. Alcoholic beverage tax totaled $447.2 million for the fiscal year ended
June 30, 1997.
Corporate Income Tax
Florida imposes an income tax on corporations. All receipts of the corporate
income tax are credited to the General Revenue Fund.
. For the fiscal year ended June 30, 1997, corporate income tax totaled
$1,362.3 million, an increase of 17.2% from the fiscal year ended June
30, 1996.
Documentary Stamp Tax
Florida imposes a documentary stamp tax on deeds and other documents relating
to realty, corporate shares, bonds, certificate of indebtedness, promissory
notes, wage assignments, and retail charge accounts. For the fiscal year ended
June 30, 1997, 62.63% of these taxes were deposited to the General Revenue
Fund.
Documentary stamp tax collections totaled $844.2 million for the fiscal year
ended June 30, 1997, an 8.9% increase from the fiscal year ended June 30, 1996.
Intangible Personal Property Tax
Florida imposes an annual intangible personal property tax on stocks, bonds,
including bonds secured by liens on Florida real property, notes, governmental
leaseholds, and certain other intangibles not secured by a lien on Florida real
property. The annual rate of tax is currently 2 mills (a mill is $1.00 of tax
per $1,000.00 of property value). Effective January 1, 2000, the rate for the
annual intangible tax will decrease to 1.5 mills. Florida also imposes a non-
recurring 2 mill tax on mortgages and other obligations secured by liens on
Florida real property. Of the net taxes imposed on intangible personal
property, 66.5% are distributed to the General Revenue Fund.
. For the fiscal year ended June 30, 1997, total intangible personal
property tax collections were $952.4 million, a 6.3% increase from the
fiscal year ended June 30, 1996.
Estate Tax
Florida imposes an estate tax on the estate of a decedent for the privilege
of transferring property at death. All receipts of the estate tax are credited
to the General Revenue Fund.
. For the fiscal year that ended June 30, 1997, receipts from this source
were $546.9 million, an increase of 30% over the fiscal year ended June
30, 1996.
Lottery
Florida began its own lottery in 1988. Florida law requires that lottery
revenues be distributed 50% to the public in prizes, at least 38.0% for use in
enhancing education, and no more than 12.0%, for costs of administering the
lottery.
. Lottery ticket sales for the fiscal year ended June 30, 1997 totaled
$2.09 billion, providing education with approximately $792.3 million.
Debt-Balanced Budget Requirement. At the end of the fiscal year ended June
30, 1998, Florida had outstanding about $8,703 million in principal amount of
debt secured by its full faith and credit. Since then, the State has issued
about $629 million in principal amount of full faith and credit bonds.
C-17
<PAGE>
Florida's Constitution and statutes require that Florida not run a deficit in
its budget, as a whole, or in any separate fund within its budget. Rather its
budget and funds must be kept in balance from currently available revenues each
fiscal year. If the Governor or Comptroller believes a deficit will occur in
any fund, by statute, he must certify his opinion to the Administrative
Commission, which then is authorized to reduce all Florida agency budgets and
releases by a sufficient amount to prevent a deficit in any fund. Additionally,
the Florida Constitution prohibits Florida from borrowing by issuing bonds to
fund its operations.
Litigation Currently under litigation are several issues relating to Florida
actions or Florida taxes that put at risk a portion of General Revenue Fund
monies. There is no assurance that any of such matters, individually or in the
aggregate, will not have a material adverse affect on Florida's financial
position. A brief summary of these matters follows.
Nathan M. Hameroff, M.D., et al. v. Agency for Healthcare Administration, et
al.
The plaintiff challenged the constitutionality of Florida's Public
Medical Assistance Trust Fund annual assessment on net operating revenue of
free standing out-patient facilities offering sophisticated radiology
services. The trial has not been scheduled. If Florida is unsuccessful in
its action, the potential cost to Florida could be $70 million.
Barnett Bank v. Florida Department of Revenue
This case involves the issue of whether under Florida's refund statute
for dealer repossessions, the Florida Department of Revenue ("DOR") is
authorized to grant a refund to a financial institution, which is the
assignee of security agreements governing the sale of automobiles and other
property sold through dealers. The 4th Judicial Circuit found that the
statute not only provides a refund or credit to the dealer who sold the
tangible personal property and collected and remitted the tax, but that the
statute also allows the right to the refund to be assigned. Several banks
have already applied for refunds based on this holding and the potential
amount in refunds to financial institutions could exceed $30 million
annually. DOR plans to appeal this decision.
Tower Environmental v. Florida Department of Environmental Protection
The plaintiff has alleged that the State of Florida and the Department of
Environmental
Protection ("DEP") breached contracts with it by freezing the processing of
reimbursement applications and by terminating the petroleum reimbursement
process. The plaintiff argues alternatively that these actions are torts or
impairment of contractual obligations. The plaintiff further alleges that
the termination of reimbursement claims constitute a breach of contract.
The plaintiff seeks damages, attorneys fees and costs, the total of which
could reach $60 million.
Barnett Banks, Inc. v. Florida Department of Revenue
The taxpayer in this case challenged the imposition of interest on
additional amounts of corporate income tax due as a result of adjustments
under a Federal income tax audit that were reported to Florida. DOR's
historical position is that interest is due from the due date of the return
until payment of the additional amount of tax is made. The taxpayer
contends that interest should begin to accrue only from the date the
Federal audit adjustments were due to be reported to Florida. A Final Order
was issued adopting DOR's position, but the taxpayer has appealed. The
potential lost revenue and refund exposure is in the range of $12 to $20
million annually.
Deficit Fund Equity
The Florida Casualty Insurance Risk Management Trust Fund has deficit
retained
C-18
<PAGE>
earnings of approximately $567 million. These represent long term
liabilities of Florida as a whole. These liabilities include claims
pertaining to state employee Workers' Compensation, federal civil rights,
and general and automotive liability.
The Special Disability Trust Fund has a deficit fund balance of
approximately $1.9 billion. This deficit is the result of claims expense
over net assessment revenue.
Year 2000 Readiness
Some of the computer technology used by the State of Florida may not have
been designed to recognize the year 2000, which means that instead of treating
the double zeros as the end of 2000 as indicating the year 2000, the technology
treats the double zeros as indicating the year 1900. Despite considerable
efforts made by the State to bring all of its computer hardware, software, and
embedded technology into compliance so as to recognize the year 2000, there can
be no guarantee that year 2000 compliance will be achieved in a timely manner
and no assurance made that entities that deal with Florida will have achieved
year 2000 compliance.
Bond Ratings
Florida maintains a bond rating of Aa2, AA+ and AA from Moody's Investors
Service, Standard & Poors Corporation, and Fitch, respectively, on the majority
of its general obligation bonds, although the rating of a particular series of
revenue bonds relates primarily to the project, facility, or other revenue
source from which such series derives funds for repayments While theses ratings
and some of the information presented above indicate that Florida is in
satisfactory economic health, there can be no assurance that there will not be
a decline in economic conditions or that particular Florida Municipal
Obligations purchased by the Fund will not be adversely affected by any such
changes.
The sources for the information presented above include official statements
and financial statements of the State of Florida. While the Sponsor has not
independently verified this information, the Sponsor has no to believe that the
information is not correct in all material respects.
Florida Taxes --
In the opinion of Carlton Fields, Tampa, Florida, special counsel on
Florida tax matters, under existing law:
The Florida Trust will not be subject to the Florida income tax imposed
by Chapter 220 so long as the Florida Trust transacts no business in
Florida or has no income subject to federal income taxation. In addition,
political subdivisions of Florida do not impose any income taxes.
Non-Corporate Unit holders will not be subject to any Florida income
taxation on income realized by the Florida Trust. Corporate Unit holders
with commercial domiciles in Florida will be subject to Florida income
taxation on income realized by the Trust. Other corporate Unit holders will
be subject to Florida income taxation on income realized by the Florida
Trust only to the extent that the income realized is other than "non-
business income" as defined by Chapter 220.
Florida Trust Units will be subject to Florida estate tax if owned by
Florida residents and may be subject to Florida estate tax if owned by
other decedents at death. However, the Florida estate tax is limited to the
amount of the credit allowable under the applicable Federal Revenue Act
(currently Section 2011 [and in some cases Section 2102] of the Internal
Revenue Code of 1986, as amended) for death taxes actually paid to the
several states.
Neither the Bonds nor the Units will be subject to the Florida ad valorem
property tax or Florida sales or use tax.
Neither the Florida Trust nor the Units will be subject to Florida
intangible personal property tax.
C-19
<PAGE>
TAX FREE VS. TAXABLE INCOME
The following tables show the approximate yields which taxable securities
must earn in various income brackets to equal tax exempt yields under combined
Federal and state individual income tax rates. This table reflects projected
Federal income tax rates and tax brackets for the 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 California and filing a Joint Return with $53,000 in taxable income
for the 2000 tax year would need a taxable investment yielding 8.87% in order
to equal a tax-free return of 6.00%. Use the appropriate table to find your tax
bracket. Read across to determine the approximate taxable yield you would need
to equal a return free of Federal income tax and state income tax.
STATE OF CALIFORNIA
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 - 10,528 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72%
$ 10,529 - 24,954 16.70 4.80 5.40 6.00 6.60 7.20 7.80
$ 24,955 - 39,384 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 39,385 - 43,850 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$ 43,851 - 54,674 32.32 5.91 6.65 7.39 8.13 8.87 9.60
$ 54,675 - 69,096 33.76 6.04 6.79 7.55 8.30 9.06 9.81
$ 69,097 - 105,950 34.70 6.13 6.89 7.66 8.42 9.19 9.95
$105,951 - 128,950 37.42 6.39 7.19 7.99 8.79 9.59 10.39
$128,951 - 161,450 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$161,451 - 288,350 42.93 7.01 7.89 8.76 9.64 10.51 11.39
Over $288,350 46.29 7.45 8.38 9.31 10.24 11.17 12.10
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 5,264 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72%
$ 5,265 - 12,477 16.70 4.80 5.40 6.00 6.60 7.20 7.80
$ 12,478 - 19,692 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 19,693 - 26,250 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$ 26,251 - 27,337 32.32 5.91 6.65 7.39 8.13 8.87 9.60
$ 27,338 - 34,548 33.76 6.04 6.79 7.55 8.30 9.06 9.81
$ 34,549 - 63,550 34.70 6.13 6.89 7.66 8.42 9.19 9.95
$ 63,551 - 128,950 37.42 6.39 7.19 7.99 8.79 9.59 10.39
$128,951 - 132,600 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$132,601 - 288,350 42.93 7.01 7.89 8.76 9.64 10.51 11.39
Over $288,350 46.29 7.45 8.38 9.31 10.24 11.17 12.10
</TABLE>
--------
Note: This table reflects the following:
1 The above tax rates represent 2000 Federal income tax rates and 1999
California income tax rates. California has not yet published its 1999
personal income tax rates.
2 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions
(including the deduction for state income tax). However, certain
itemized deductions are reduced by the lesser of (i) three percent of
the amount of the taxpayer's AGI over $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 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.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
5 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.
C-20
<PAGE>
STATE OF FLORIDA
2000 Tax Year
<TABLE>
<CAPTION>
TAX EXEMPT YIELD
Taxable Income Bracket 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
Joint Return Single Return Effective Federal Tax Rate TAXABLE EQUIVALENT YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 43,850 $ 0 - 26,250 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 43,851 - 105,950 $ 26,251 - 63,550 28.00 5.56 6.25 6.94 7.64 8.33 9.03
$105,951 - 128,950 $ 63,551 - 128,950 31.00 5.80 6.52 7.25 7.97 8.70 9.42
$128,951 - 161,450 $128,951 - 132,600 31.93 5.88 6.61 7.35 8.08 8.81 9.55
$161,451 - 288,350 $132,601 - 288,350 37.08 6.36 7.15 7.95 8.74 9.54 10.33
OVER $288,350 OVER $288,350 40.79 6.76 7.60 8.44 9.29 10.13 10.98
</TABLE>
--------
Note: This table reflects the following:
1 Taxable income equals adjusted gross income ("AGI") less personal
exemptions and itemized deductions. However, certain itemized deductions
are reduced by the lesser of (i) three percent of the amount of the
taxpayer's AGI over $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 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.
5 Florida does not impose a state personal income tax.
C-21
<PAGE>
TAX EXEMPT SECURITIES TRUST
----------------------------------------------------------------
9,500 Units Dated July 20, 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. 333-41340, 333-37428 and 333-31494) 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
<S> <C> Inc.
Investment Summary A-2 7 World Trade Center
Summary of Essential Information A-7 40th Floor
Portfolio Summary as of Date of New York, New York 10048
Deposit A-9
Independent Auditors' Report A-11 (212) 816-4000
Statements of Financial Condition A-12
Portfolio A-13 Trustee:
Notes to Portfolios of Securities A-18
Tax Exempt Securities Trust B-1 The Chase Manhattan Bank
Risk Factors B-2 4 New York Plaza
Taxes B-8 New York, New York 10004
Expenses and Charges B-12 (800) 354-6565
Public Offering B-13
Rights of Holders B-17 -------------------------
Sponsor B-20
Trustee B-21 This Prospectus does not
Evaluator B-22 constitute an offer to
Amendment and Termination of the sell, or a solicitation
Trust Agreement B-23 of an offer to buy,
Miscellaneous B-23 securities in any state
Bond Ratings B-23 to any person to whom it
Federal Tax Free vs. Taxable Income B-26 is not lawful to make
The State Trusts C-1 such offer in such
Tax Free vs. Taxable Income C-20 state.
</TABLE>
--------------------------------------------------------------------------------
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
--------------------------------------------------------------------------------
No person is authorized to give any information or to make any representations
with respect to this Trust, not contained in this Prospectus and you should not
rely on any other information. The Trust is registered as a unit investment
trust 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.
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<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" and "Legal Opinion" in the Prospectus.
3.2 --Opinion of special California counsel.
3.3 --Opinion of special Florida counsel.
4.1 --Consent of the Evaluator.
5.1 --Consent of KPMG LLP.
</TABLE>
II-2
<PAGE>
SIGNATURES
The registrant, Tax Exempt Securities Trust, Intermediate Term Trust 35,
California Trust 176 and Florida Trust 93, 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 20th day of July, 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.
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<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
