<PAGE>
As filed with the Securities and Exchange Commission on November 17, 2000
Registration Nos. 333-48404
333-44810
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
Form S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact Name of Trust:
TAX EXEMPT SECURITIES TRUST
National Trust 248
New Jersey Trust 147
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
399 Park Avenue
New York, New York 10022
E. Title of Securities being registered:
An indefinite number of Units of beneficial interest pursuant to Rule 24f-2
promulgated under the Investment Company Act of 1940, as amended.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of the registration statement.
[X] Check box if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TAX EXEMPT SECURITIES TRUST
--------------------------------------------------------------------
National Trust 248
New Jersey Trust 147
Unit Investment Trusts
SalomonSmithBarney The Tax Exempt Securities Trust is sponsored by
--------------------- Salomon Smith Barney Inc. and consists of two
A member of citigroup separate unit investment trusts: National Trust 248
[LOGO] and New Jersey Trust 147. Each trust contains a
fixed portfolio of long term municipal bonds. The
interest income of these bonds is generally exempt
from Federal income tax and, for state designated
trusts, state and local income tax in the state for
which the trust is named.
This Prospectus contains three parts. Part A contains the Summary of Essential
Information including summary material relating to the trusts, the Portfolios
and the Statements of Financial Condition. Part B contains more detailed
information about the Tax Exempt Securities Trust and Part C contains specific
information about the state designated trusts. Part A may not be distributed
unless accompanied by Parts B and C.
Read and retain this Prospectus for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
Prospectus dated November 17, 2000
INVESTMENT PRODUCTS: NOT FDIC INSURED; NO BANK GUARANTEE; MAY LOSE MONEY
<PAGE>
TAX EXEMPT SECURITIES TRUST
INVESTMENT SUMMARY AS OF NOVEMBER 16, 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 November 16, 2000 would have been
$1,005.95 for the National Trust and $999.36 for the New Jersey Trust. During
the initial public offering period the Public Offering Price per unit is
calculated by:
. dividing the aggregate offering price of the underlying bonds in a trust
by the number of units outstanding
. adding a sales charge of 4.70% (4.932% of the aggregate offering price of
the bonds per unit)
A-2
<PAGE>
. adding a per unit amount sufficient to reimburse the Sponsor for
organizational costs
After the initial offering period the Public Offering Price per unit is
calculated by:
. dividing the aggregate bid price of the underlying bonds in a trust by
the number of units outstanding
. adding a sales charge of 5.00% (5.263% of the aggregate bid price of the
bonds per unit)
Market for Units
The Sponsor currently intends to repurchase units from holders at prices based
upon the aggregate bid price of the underlying bonds. The Sponsor is not
obligated to maintain a market and may stop doing so without prior notice for
any business reason. If the Sponsor stops repurchasing units, a unit holder may
dispose of its units by redemption. The price received from the Trustee by the
unit holder for units being redeemed is also based upon the aggregate bid price
of the underlying bonds. Units can be sold at any time to the Sponsor or the
Trustee without fee or penalty.
A-3
<PAGE>
TAX EXEMPT SECURITIES TRUST
FEE TABLE FOR NATIONAL TRUST 248
--------------------------------------------------------------------------------
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% $47.16
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .249% $ 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............................................... .138% $ 1.32
Other Operating Expenses.................................... .037% $ .35
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .026% $ .25
---- ------
Total..................................................... .201% $ 1.92
==== ======
</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 .201%
and a 5% annual return on the investment
throughout the periods............................ $490 $532 $578 $714
</TABLE>
The example assumes reinvestment of all dividends and distributions and
utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The example should not be
considered a representation of past or future expenses or annual rate of
return; the actual expenses and annual rate of return may be more or less than
those assumed for purposes of the example.
A-4
<PAGE>
TAX EXEMPT SECURITIES TRUST
FEE TABLE FOR NEW JERSEY TRUST 147
--------------------------------------------------------------------------------
This Fee Table is intended to help you to understand the costs and expenses
that you will bear directly or indirectly. See Public Sale of Units and
Expenses and Charges. Although each Trust is a unit investment trust rather
than a mutual fund, this information is presented to permit a comparison of
fees.
--------------------------------------------------------------------------------
Unitholder Transaction Expenses (fees paid directly from your investment)
<TABLE>
<CAPTION>
As a % of
Public Amounts
Offering per
Price Unit
---------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................ 4.70% $46.85
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .251% $ 2.50
Estimated Annual Trust Operating Expenses (expenses that are deducted from
Trust assets)
<CAPTION>
Amounts
As a % of per
Net Assets Unit
---------- -------
<S> <C> <C>
Trustee's Fee............................................... .143% $ 1.36
Other Operating Expenses.................................... .032% $ .30
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .026% $ .25
---- ------
Total..................................................... .201% $ 1.91
==== ======
</TABLE>
Example
<TABLE>
<CAPTION>
Cumulative Expenses
and Charges
Paid for Period
----------------------
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses and
charges on a $10,000 investment, assuming the
Trust's estimated operating expense ratio of .201%
and a 5% annual return on the investment throughout
the periods......................................... $490 $532 $578 $714
</TABLE>
The example assumes reinvestment of all dividends and distributions and
utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The example should not be
considered a representation of past or future expenses or annual rate of
return; the actual expenses and annual rate of return may be more or less than
those assumed for purposes of the example.
A-5
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION
AS OF NOVEMBER 16, 2000 +
Sponsor
Salomon Smith Barney Inc.
Trustee
The Chase Manhattan Bank
Evaluator
Kenny S & P Evaluation Services, a division of J.J. Kenny Company, Inc.
Date of Deposit and of Trust Agreement
November 16, 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 December 1, 2000.
Distribution Dates
The fifteenth day of each month,** commencing December 15, 2000.
Evaluation Time
As of 1:00 P.M. on the Date of Deposit. Thereafter, as of 4:00 P.M. Eastern
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 $2.41 for the National Trust and
$2.20 for the New Jersey Trust, will be made on December 15, 2000.
*** In addition to this amount, the Sponsor may be reimbursed for bookkeeping
and other administrative expenses not exceeding its actual costs.
A-6
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION
AS OF NOVEMBER 16, 2000
<TABLE>
<CAPTION>
National New Jersey
Trust 248 Trust 147
---------- ----------
<S> <C> <C>
Principal Amount of Bonds in Trust.................... $7,000,000 $2,000,000
Number of Units....................................... 7,000 2,000
Principal Amount of Bonds in Trust per Unit........... $ 1,000 $ 1,000
Fractional Undivided Interest in Trust per Unit....... 1/7,000 1/2,000
Minimum Value of Trust:
Trust Agreement may be Terminated if Principal Amount
is less than........................................ $3,500,000 $1,000,000
Calculation of Public Offering Price per Unit*:
Aggregate Offering Price of Bonds in Trust........... $6,694,038 $1,900,023
========== ==========
Divided by Number of Units........................... $ 956.29 $ 950.01
Plus: Sales Charge (4.70% of the Public Offering
Price).............................................. $ 47.16 $ 46.85
---------- ----------
Public Offering Price per Unit....................... $ 1,003.45 $ 996.86
Plus: Estimated Organization Expenses................ $ 2.50 $ 2.50
Plus Accrued Interest*............................... $ .96 $ .88
---------- ----------
Total................................................ $ 1,006.91 $ 1,000.24
========== ==========
Sponsor's Initial Repurchase Price per Unit (per Unit
Offering Price of Bonds)**........................... $ 956.29 $ 950.01
Approximate Redemption Price per Unit (per Unit Bid
Price of Bonds)**.................................... $ 952.29 $ 946.01
---------- ----------
Difference Between per Unit Offering and Bid Prices of
Bonds................................................ $ 4.00 $ 4.00
========== ==========
Calculation of Estimated Net Annual Income per Unit:
Estimated Annual Income per Unit..................... $ 59.88 $ 54.83
Less: Estimated Trustee's Annual Fee***.............. $ 1.32 $ 1.36
Less: Other Estimated Annual Expenses................ $ .60 $ .55
---------- ----------
Estimated Net Annual Income per Unit................. $ 57.96 $ 52.92
========== ==========
Calculation of Monthly Income Distribution per Unit:
Estimated Net Annual Income per Unit................. $ 57.96 $ 52.92
Divided by 12........................................ $ 4.83 $ 4.41
Accrued interest from the day after the Date of
Deposit to the first record date**................... $ 2.41 $ 2.20
First distribution per Unit........................... $ 2.41 $ 2.20
Daily Rate (360-day basis) of Income Accrual per
Unit................................................. $ .1610 $ .1470
Estimated Current Return based on Public Offering
Price****............................................ 5.76% 5.30%
Estimated Long-Term Return****........................ 5.84% 5.32%
</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-7
<PAGE>
TAX EXEMPT SECURITIES TRUST
PORTFOLIO SUMMARY AS OF NOVEMBER 16, 2000
<TABLE>
<CAPTION>
National New Jersey
Trust 248 Trust 147
------------ ------------
<S> <C> <C>
Number of municipal bonds (from 15 States for the
National Trust; from New Jersey and Puerto Rico for
the New Jersey Trust)............................... 19 7
Number of bonds issued with "original issue
discount"........................................... 13 6
Average life to maturity of the bonds in the Trust
(in years).......................................... 27.2 30.0
<CAPTION>
Percentages+ Percentages+
------------ ------------
<S> <C> <C>
Percentage of bonds acquired from the Sponsor (as
sole underwriter, member of underwriting syndicate
or otherwise from its own organization)............. 4.2% 34.5%
General obligation bonds backed by the taxing power
of state issuer..................................... 0.0% 0.0%
Bonds not supported by the issuer's power to levy
tax................................................. 100.0% 100.0%
The bonds derived their income from the following
primary sources:
. capital improvement facilities..................... 3.1% 0.0%
. educational facilities............................. 11.3% 15.9%
. hospital and health care facilities................ 37.1%* 52.8%*
. housing facilities................................. 26.6%* 0.0%
. pollution control facilities....................... 7.1% 11.8%
. transportation facilities.......................... 5.8% 19.5%
. various purpose.................................... 9.0% 0.0%
The bonds in the Trust are rated as follows:
. Standard & Poor's
AAA................................................ 5.8% 11.8%
AA................................................. 4.1% 19.5%
A.................................................. 57.9% 21.9%
----- -----
Total............................................ 67.8% 53.2%
===== =====
. Moody's
Aa................................................. 9.0% 15.9%
A.................................................. 23.2% 30.9%
----- -----
Total............................................ 32.2% 46.8%
===== =====
The following insurance companies have insured the
bonds in the Trust as to timely payment of principal
and interest:
. ACA................................................ 26.7% 21.9%
. Asset Guaranty..................................... 2.8% 0.0%
. FGIC............................................... 5.8% 0.0%
. MBIA............................................... 0.0% 11.8%
----- -----
Total............................................ 35.3% 33.7%
===== =====
</TABLE>
------------
+ Percentages based on the aggregate offering price of the bonds in the trust.
* The Trust is considered to be "concentrated" in a particular category when
bonds of that type make up 25% or more of the portfolio.
A-8
<PAGE>
UNDERWRITING
The names and addresses of the Underwriters and the number of Units to be
sold by them are as follows:
<TABLE>
<CAPTION>
Units
--------------------
National New Jersey
Trust 248 Trust 147
--------- ----------
<S> <C> <C>
Salomon Smith Barney Inc. ................................. 6,400 2,000
388 Greenwich Street
New York, New York 10013
Raymond James Financial ................................... 250 --
880 Carillon Parkway
St. Petersburg, Florida 33733
William R. Hough........................................... 250 --
100 Second Avenue
Suite 800
St. Petersburg, Florida 33701
CIBC Oppenheimer Corp. .................................... 100 --
Oppenheimer Tower
One World Financial Center
New York, New York 10281
----- -----
Total...................................................... 7,000 2,000
===== =====
</TABLE>
A-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and Unit Holders of
Tax Exempt Securities Trust, National Trust 248 and New Jersey Trust 147:
We have audited the accompanying statements of financial condition, including
the portfolios of securities, of each of the respective trusts constituting Tax
Exempt Securities Trust, National Trust 248 and New Jersey Trust 147, as of
November 16, 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 November 16, 2000, for the purchase
of securities, as shown in the statements of financial condition and portfolios
of securities. An audit of a statement of financial condition also includes
assessing the accounting principles used and significant estimates made by the
Trustee, as well as evaluating the overall statement of financial condition
presentation. We believe that our audits of the statements of financial
condition provide a reasonable basis for our opinion.
In our opinion, the statements of financial condition referred to above present
fairly, in all material respects, the financial position of each of the
respective trusts constituting Tax Exempt Securities Trust, National Trust 248
and New Jersey Trust 147 as of November 16, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
November 16, 2000
A-10
<PAGE>
TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, NOVEMBER 16, 2000
<TABLE>
<CAPTION>
TRUST PROPERTY
---------------------
National New York
Trust 248 Trust 147
---------- ----------
<S> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by
letter of credit (1).............................. $6,694,038 $1,900,023
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)............................. 96,486 28,583
Cash (3)............................................. 17,500 5,000
---------- ----------
Total............................................ $6,808,024 $1,933,606
========== ==========
<CAPTION>
LIABILITIES AND
INTEREST OF
UNIT HOLDERS
---------------------
<S> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)........................... $ 96,486 $ 28,583
Reimbursement to Sponsor for Organization Cost
(3)............................................... 17,500 5,000
---------- ----------
113,986 33,583
---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest outstanding
(National Trust 248 7,000; New Jersey Trust 147:
2,000)
Cost to investors (4)............................. 7,041,674 1,998,728
Less--Gross underwriting commission (5)........... 330,136 93,705
Less--Organization Costs (3)...................... 17,500 5,000
---------- ----------
Net amount applicable to investors................ 6,694,038 1,900,023
---------- ----------
Total............................................ $6,808,024 $1,933,606
========== ==========
</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 November 16, 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 $10,000,000 which was deposited with the
Trustee for the purchase of $9,000,000 principal amount of Bonds in all of
the Trusts, pursuant to contracts to purchase such Bonds at the aggregate
cost of $8,594,061 plus $125,069 representing accrued interest thereon
through the Date of Deposit.
(2) The Indenture provides that the Trustee will advance amounts equal to the
accrued interest on the underlying securities of each Trust (net of
accrued expenses) through the Date of Deposit and that such amounts will
be distributed to the Sponsor as Unit holder of record on such date, as
set forth in Part B, "Rights of Unit Holders--Distribution of Interest and
Principal."
(3) A portion of the Public Offering Price consists of cash in an amount
sufficient to reimburse the Sponsor for the per Unit portion of all or a
part of the organization costs of establishing a Trust. These costs have
been estimated at $2.50 per Unit for each of the Trusts. A payment will be
made as of the close of the initial public offering period to an account
maintained by the Trustee from which the obligation of the investors to
the Sponsor will be satisfied. To the extent that actual organization
expenses are less than the estimated amount, only the actual organization
expenses will be deducted from the assets of a Trust.
(4) Aggregate public offering price (exclusive of interest) computed on 7,000
Units of the National Trust and 2,000 Units of the New Jersey Trust, on
the basis set forth in Part B, "Public Offering--Offering Price."
(5) Sales charge of 4.70% computed on 7,000 Units of the National Trust and
2,000 Units of the New Jersey Trust on the basis set forth in Part B,
"Public Offering--Offering Price."
(6) The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of each
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide reasonable
assurance as to the integrity and reliability of, financial reporting of
each Trust. The Trustee is also responsible for all estimates (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-11
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 248--PORTFOLIO OF SECURITIES
AS OF NOVEMBER 16, 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>
1. $ 600,000 Northern Tobacco Aa3* 6/1/10 @ 100 $ 604,206 6.400% $ 39,000
Securitization SF 6/1/23 @ 100
Corporation, Alaska,
Tobacco Settlement
Asset-Backed Bonds,
6.50% Due 6/1/2031
2. 500,000 City of Tallahassee, A3* 12/1/10 @ 100 502,740 6.300 31,875
Florida, Health SF 12/1/21 @ 100
Facilities Revenue
Bonds, Tallahassee
Memorial HealthCare,
Inc. Project, 6.375% Due
12/1/2030
3. 325,000 Illinois Health A3* 7/1/09 @ 101 280,423 7.050 18,688
Facilities Authority SF 7/1/16 @ 100
Revenue Refunding Bonds,
West Suburban Hospital
Medical Center, 5.75%
Due 7/1/2020
4. 325,000 Indiana Health Facility A 2/15/08 @ 102 281,879 6.400 17,063
Financing Authority, SF 2/15/19 @ 100
Hospital Revenue
Refunding Bonds, Floyd
Memorial Hospital and
Health Services Project,
5.25% Due 2/15/2022
5. 600,000 Iowa Finance Authority A 12/1/08 @ 100 603,738 6.150 37,500
Community Provider SF 12/1/12 @ 100
Revenue Bonds, Boys and
Girl Home and Family
Services, Inc. Project,
ACA Insured, 6.25% Due
12/1/2028
6. 195,000 Louisiana Local A -- 204,834 6.150 12,772
Government Environmental
Facilities and Community
Development Authority
Revenue Bonds, Capital
Projects and Equipment
Acquisition Program, ACA
Insured, 6.55% Due
9/1/2025
</TABLE>
A-12
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 248--PORTFOLIO OF SECURITIES
AS OF NOVEMBER 16, 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>
7. $ 250,000 Maryland Economic A 9/1/10 @ 102 $ 252,310 5.900% $ 15,000
Development Corporation, SF 9/1/21 @ 100
Student Housing Revenue
Bonds, Allegany College
of Maryland Project, ACA
Insured, 6.00% Due
9/1/2032
8. 100,000 Massachusetts Health and AA- 7/1/09 @ 101 86,740 6.250 5,250
Educational Facilities SF 7/1/20 @ 100
Authority Revenue Bonds,
Partners HealthCare
System Issue, 5.25% Due
7/1/2029
9. 250,000 Minnesota Agricultural A 11/15/10 @ 101 255,448 6.100 15,937
and Economic Development SF 11/15/16 @ 100
Board, Health Care
System Revenue Bonds,
Fairview Health
Services, 6.375% Due
11/15/2022
10. 500,000 Business Finance A3* 10/1/03 @ 102 474,725 6.238 29,375
Authority of the State
of New Hampshire,
Pollution Control
Refunding Revenue Bonds,
The United Illuminating
Company Project, 5.875%
Due 10/1/2033
11. 175,000 County of Cuyahoga, A- 2/15/09 @ 101 173,818 6.200 10,762
Ohio, Hospital SF 2/15/25 @ 100
Improvement Revenue
Bonds, The Metrohealth
System Project, 6.15%
Due 2/15/2029
12. 295,000 City of Steubenville, A3* 10/1/10 @ 100 297,106 6.400 19,175
Ohio, Hospital SF 10/1/21 @ 100
Facilities Revenue
Refunding and
Improvement Bonds,
Trinity Health System
Obligated Group, 6.50%
Due 10/1/2030
13. 500,000 The Health, Educational A 1/1/07 @ 102 499,500 6.257 31,250
and Housing Facility SF 7/1/17 @ 100
Board of the County of
Shelby, Tennessee,
Multifamily Housing
Revenue Bonds, The
Corners Apartments
Project, 6.25% Due
1/1/2027
</TABLE>
A-13
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 248--PORTFOLIO OF SECURITIES
AS OF NOVEMBER 16, 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>
14. $ 185,000 Gregg County, Texas, AA 10/1/10 @ 101 $ 189,237 6.100% $ 11,794
Health Facilities SF 10/1/26 @ 100
Development Corporation,
Hospital Revenue Bonds,
Good Shepherd Center
Project, Asset Guaranty
Insured, 6.375% Due
10/1/2029
15. 500,000 Harris County, Texas, A 7/1/09 @ 102 452,820 6.800 29,500
Housing Finance SF 1/1/10 @ 100
Corporation, Multifamily
Housing Revenue Bonds,
Windfern Pointe and
Waterford Place
Apartments Project,
5.90% Due 7/1/2019
16. 250,000 Washington State Housing A 1/1/09 @ 102 225,167 6.200 13,625
Finance Commission, SF 7/1/19 @ 100
Nonprofit Housing
Revenue and Refunding
Revenue Bonds,
Presbyterian Ministries,
Incorporated Projects,
ACA Insured, 5.45% Due
1/1/2029
17. 500,000 Washington State Housing A 1/1/11 @ 100 503,660 6.250 31,750
Finance Commission SF 1/1/22 @ 100
Nonprofit Revenue Bonds,
Seattle Academy Project,
ACA Insured, 6.35% Due
1/1/2031
18. 450,000 The Central Puget Sound AAA 2/1/09 @ 101 391,217 5.700 21,375
Regional Transit SF 2/1/22 @ 100
Authority, Washington,
Sales Tax and Motor
Vehicles Excise Tax
Bonds, FGIC Insured,
4.75% Due 2/1/2028
19. 500,000 Wisconsin Health and A- 2/15/08 @ 101 414,470 6.900 27,500
Educational Facilities SF 2/15/19 @ 100
Authority Revenue Bonds,
Franciscan Sisters of
Christian, Charity
HealthCare Ministry,
Inc., 5.50% Due
2/15/2028
---------- ---------- --------
$7,000,000 $6,694,038 $419,191
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-14
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW JERSEY TRUST 147--PORTFOLIO OF SECURITIES
AS OF NOVEMBER 16, 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 New Jersey Economic A 7/1/08 @ 102 $ 236,433 5.900% $ 13,750
Development Authority, SF 7/1/19 @ 100
First Mortgage Revenue
Bonds, Cadbury
Corporation Project, ACA
Insured, 5.50% Due
7/1/2028
2. 250,000 New Jersey Health Care A2* 7/1/09 @ 101 234,602 5.950 13,750
Facilities Financing SF 7/1/20 @ 100
Authority Revenue Bonds,
Burdette Tomlin Memorial
Hospital Issue, 5.50%
Due 7/1/2029
3. 350,000 New Jersey Health Care A3* 1/1/10 @ 101 352,608 5.900 21,000
Facilities, Financing SF 1/1/26 @ 100
Authority Revenue Bonds,
Hackensack University
Medical Center Issue,
6.00% Due 1/1/2034
4. 200,000 New Jersey Health Care A 7/1/09 @ 101 179,868 6.000 10,500
Facilities Financing SF 7/1/20 @ 100
Authority Revenue Bonds,
Palisades Medical Center
of New York Presbyterian
Healthcare System,
Obligated Group Issue,
5.25% Due 7/1/2028
5. 225,000 The Pollution Control AAA 11/1/03 @ 102 223,308 5.600 12,487
Financing Authority of
Salem County, New
Jersey, Pollution
Control Revenue
Refunding Bonds, Public
Service Electric and Gas
Company, MBIA Insured,
5.55% Due 11/1/2033
6. 425,000 The Port Authority of AA- 8/1/05 @ 101 371,050 5.600 20,188
New York & New Jersey SF 8/1/25 @ 100
Revenue Bonds, 4.75% Due
8/1/2033
7. 300,000 The Children's Trust Aa3* 7/1/10 @ 100 302,154 5.900 18,000
Fund, Tobacco Settlement SF 7/1/12 @ 100
Asset-Backed Bonds,
Puerto Rico, 6.00% Due
7/1/2026
---------- ---------- --------
$2,000,000 $1,900,023 $109,675
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-15
<PAGE>
NOTES TO PORTFOLIOS OF SECURITIES
(1) For a description of the meaning of the applicable rating symbols as
published by Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., Moody's Investors Service(*) and Fitch Investor Services, Inc.(**),
see Part B, "Bond Ratings."
(2) There is shown under this heading the year in which each issue of Bonds
initially is redeemable and the redemption price for that year; unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter, but not below par. "SF" indicates a sinking fund has
been or will be established with respect to an issue of Bonds. The prices
at which Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to a Trust. Certain Bonds in a Portfolio, including Bonds listed as
not being subject to redemption provisions, may be redeemed in whole or in
part other than by operation of the stated redemption or sinking fund
provision under certain unusual or extraordinary circumstances specified in
the instruments setting forth the terms and provisions of such Bonds. For
example, see discussion of obligations of housing authorities in Part B,
"Tax Exempt Securities Trust--Portfolio."
(3) Contracts to purchase Bonds were entered into during the period October 16,
2000, through November 16, 2000, with the settlement date on November 22,
2000. The Profit to the Sponsor on Deposit totals $84,963 for the National
Trust and $16,291 for the New Jersey Trust.
(4) Evaluation of the Bonds by the Evaluator is made on the basis of current
offering prices for the Bonds. The current offering prices of the Bonds are
greater than the current bid prices of the Bonds. The Redemption Price per
Unit and the public offering price of the Units in the secondary market are
determined on the basis of the current bid prices of the Bonds. (See Part
B, "Public Offering--Offering Price" and "Rights of Unit Holders--
Redemption of Units.") Yield on Date of Deposit was computed on the basis
of offering prices on the date of deposit. On November 16, 2000, the
aggregate bid price of the Bonds was $6,666,038 for the National Trust and
$1,892,023 for the New Jersey Trust.
A-16
<PAGE>
PROSPECTUS--Part B:
--------------------------------------------------------------------------------
Note that Part B of this Prospectus may not be distributed unless accompanied
by Part A.
--------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST
The Trusts
For over 20 years, Tax Exempt Securities Trust has specialized in quality
municipal bond investments designed to meet a variety of investment objectives
and tax situations. Tax Exempt Securities Trust is a convenient and cost
effective alternative to individual bond purchases. Each Trust is one of a
series of similar but separate unit investment trusts. A unit investment trust
provides many of the same benefits as individual bond purchases. However, while
receiving many of the benefits, the holder of Units (the "Holder") avoids the
complexity of analyzing, selecting and monitoring a multi-bond portfolio. Each
Trust is also created under the laws of the State of New York by a Trust
Indenture and Agreement and related Reference Trust Agreement dated the Date of
Deposit (collectively, the "Trust Agreement"), of Salomon Smith Barney Inc., as
Sponsor, The Chase Manhattan Bank, as Trustee, and Kenny S&P Evaluation
Services, a division of J.J. Kenny Company, Inc., as Evaluator. Each Trust
containing Bonds of a State for which such Trust is named (a "State Trust") and
each National Trust is referred to herein as the "Trust" and together they are
referred to as "Trusts." On the Date of Deposit, the Sponsor deposited
contracts and funds (represented by a certified check or checks and/or an
irrevocable letter or letters of credit, issued by a major commercial bank) for
the purchase of certain interest-bearing obligations (the "Bonds") and/or Units
of preceding Series of Tax Exempt Securities Trust (the "Deposited Units"). The
Bonds and Deposited Units (if any) are referred to herein collectively as the
"Securities." After the deposit of the Securities and the creation of the
Trusts, the Trustee delivered to the Sponsor registered certificates of
beneficial interest (the "Certificates") representing the units (the "Units")
comprising the entire ownership of each Trust. These Units are now being
offered hereby. References to multiple Trusts herein should be read as
references to a single Trust if Part A indicates the creation of only one
Trust.
Objectives
The objectives of each Trust are tax-exempt income and conservation of
capital through an investment in a diversified portfolio of municipal bonds.
There is no guarantee that a Trust's objectives will be achieved.
Portfolio
The Sponsor's investment professionals select Bonds for the Trust portfolios
from among the 200,000 municipal bond issues that vary according to bond
purpose, credit quality and years to maturity. The following factors, among
others, were considered in selecting the Bonds for each Trust:
. whether the interest on the Bonds selected would be exempt from Federal
and/or state income taxes imposed on the Holders;
. whether the Bonds were rated "A" or better by a major bond rating agency;
. the maturity dates of the Bonds (including whether such Bonds may be
called or redeemed prior to their stated maturity);
. the diversity of the types of Bonds; and
. the cost of the Bonds relative to what the Sponsor believes is their
value.
The Units
Each Unit in a Trust represents a fractional undivided interest in the
principal and net income of such Trust. If any Units are redeemed after the
date of this Prospectus, the principal amount of Bonds in the Trust will be
reduced by an amount allocable to redeemed Units. Also, the fractional
undivided interest in the Trust represented by each unredeemed Unit will be
increased. Units will remain outstanding until redeemed or until the
termination of the Trust.
B-1
<PAGE>
RISK FACTORS
An investment in Units is subject to the following risks.
Failure of Issuers to Pay Interest and/or Principal
The primary risk associated with an investment in Bonds is that the issuer of
the Bond will default on principal and/or interest payments when due on the
Bond. Such a default would have the effect of lessening the income generated by
the Trust and/or the value of the Trust's Units. The bond ratings assigned by
major rating organizations are an indication of the issuer's ability to make
interest and principal payments when due on its bonds. Subsequent to the date
of deposit the rating assigned to a bond may decline. Neither the Sponsor nor
the Trustee shall be liable in any way for any default, failure or defect in
any bond.
Original Issue Discount Bonds and Zero Coupon Bonds
Certain of the Bonds in the Trust may be original issue discount bonds and/or
zero coupon bonds. Original issue discount bonds are bonds originally issued at
less than the market interest rate. Zero coupon bonds are original issue
discount bonds that do not provide for the payment of current interest. For
Federal income tax purposes, original issue discount on such bonds must be
accrued over the terms of such bonds. On sale or redemption, the difference
between (i) the amount realized (other than amounts treated as tax-exempt
income, and (ii) the tax basis of such bonds (properly adjusted for the accrual
of original issue discount) will be treated as taxable income, gain or loss.
See "Taxes" herein.
"When Issued" and "Delayed Delivery" Bonds
Certain Bonds in a Trust may have been purchased by the Sponsor on a "when
issued" basis. Bonds purchased on a "when issued" basis have not yet been
issued by their governmental entity on the Date of Deposit (although such
governmental entity had committed to issue such Bonds). In the case of these
and/or certain other Bonds, the delivery of the Bonds may be delayed ("delayed
delivery") or may not occur. The effect of a Trust containing "delayed
delivery" or "when issued" Bonds is that Holders who purchased their Units
prior to the date such Bonds are actually delivered to the Trustee may have to
make a downward adjustment in the tax basis of their Units. Such downward
adjustment may be necessary to account for interest accruing on such "when
issued" or "delayed delivery" Bonds during the time between the Holders
purchase of Units and delivery of such Bonds to a Trust. Such adjustment has
been taken into account in computing the Estimated Current Return and Estimated
Long-Term Return set forth herein, which is slightly lower than Holders may
receive after the first year. To the extent that the delivery of such Bonds is
delayed beyond their respective expected delivery dates, the Estimated Current
Return and Estimated Long-Term Return for the first year may be lower than
indicated in the "Summary of Essential Information" in Part A.
Redemption or Sale Prior to Maturity
Most of the Bonds in the Portfolio of a Trust are subject to redemption prior
to their stated maturity date pursuant to sinking fund or call provisions. A
call or redemption provision is more likely to be exercised when the offering
price valuation of a bond is higher than its call or redemption price. Such
price valuation is likely to be higher in periods of declining interest rates.
Certain of the Bonds may be sold or redeemed or otherwise mature. In such
cases, the proceeds from such events will be distributed to Holders and will
not be reinvested. Thus, no assurance can be given that a Trust will retain for
any length of time its present size and composition. To the extent that a Bond
was deposited in a Trust at a price higher than the price at which it is
redeemable, or at a price higher than the price at which it is sold, a sale or
redemption will result in a loss in the value of Units. Monthly
B-2
<PAGE>
distributions will generally be reduced by the amount of the income which would
otherwise have been paid with respect to sold or redeemed bonds. The Estimated
Current Return and Estimated Long-Term Return of the Units may be adversely
affected by such sales or redemptions.
Market Discount
The Portfolio of the Trust may consist of some Bonds whose current market
values were below face value on the Date of Deposit. A primary reason for the
market value of such Bonds being less than face value at maturity is that the
interest coupons of such Bonds are at lower rates than the current market
interest rate for comparably rated Bonds. Bonds selling at market discounts
tend to increase in market value as they approach maturity. A market discount
tax-exempt Bond will have a larger portion of its total return in the form of
taxable ordinary income (because market discount income is taxable ordinary
income) and less in the form of tax-exempt income than a comparable Bond
bearing interest at current market rates. See "Taxes" herein.
Failure of a Contract to Purchase Bonds
In the event that any contract for the purchase of any Bond fails, the
Sponsor is authorized under the Trust Agreement to instruct the Trustee to
acquire other securities (the "Replacement Bonds") for inclusion in the
Portfolio of the affected Trust. However, in order for the Trustee to acquire
any Replacement Bonds, they must be deposited not later than the earlier of (i)
the first monthly Distribution Date of the Trust or (ii) 90 days after such
Trust was established. The cost and aggregate principal amount of a Replacement
Bond may not exceed the cost and aggregate principal amount of the Bond which
it replaces. In addition, a Replacement Bond must:
. be a tax-exempt bond;
. have a fixed maturity or disposition date comparable to the Bond it
replaces;
. be purchased at a price that results in a yield to maturity and in a
current return which is approximately equivalent to the yield to maturity
and current return of the Bond which it replaces;
. be purchased within twenty days after delivery of notice of the failed
contracts; and
. be rated in a category of A or better by a major rating organization.
Whenever a Replacement Bond has been acquired for a Trust, the Trustee shall,
within five days thereafter, notify all Holders of such Trust of the
acquisition of the Replacement Bond.
In the event that a contract to purchase any of the Bonds fails and
Replacement Bonds are not acquired, the Trustee will, not later than the second
monthly Distribution Date, distribute to Holders the funds attributable to the
failed contract. The Sponsor will, in such a case, refund the sales charge
applicable to the failed contract. If less than all the funds attributable to a
failed contract are applied to purchase Replacement Bonds, the remaining moneys
will be distributed to Holders not later than the second monthly Distribution
Date. Moreover, the failed contract may reduce the Estimated Net Annual Income
per Unit, and may lower the Estimated Current Return and Estimated Long-Term
Return of the affected Trust.
Risks Inherent in an Investment in Different Types of Bonds
The Trust may contain or be concentrated in one or more of the
classifications of Bonds referred to below. A Trust is considered to be
"concentrated" in a particular category when the Bonds in that category
constitute 25% or more of the aggregate value of the Portfolio. An investment
in Units of the Trust should be made with an understanding of the risks that
these investments may entail, certain of which are described below.
B-3
<PAGE>
General Obligation Bonds. Certain of the Bonds in the Portfolio may be
general obligations of a governmental entity that are secured by the taxing
power of the entity. General obligation bonds are backed by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. However, the taxing power of any governmental entity may be limited
by provisions of state constitutions or laws and an entity's credit will depend
on many factors. Some such factors are the entity's tax base, the extent to
which the entity relies on Federal or state aid, and other factors which are
beyond the entity's control.
Industrial Development Revenue Bonds ("IDRs"). IDRs including pollution
control revenue bonds, are tax-exempt securities issued by states,
municipalities, public authorities or similar entities to finance the cost of
acquiring, constructing or improving various projects. These projects are
usually operated by corporate entities. IDRs are not general obligations of
governmental entities backed by their taxing power. Issuers are only obligated
to pay amounts due on the IDRs to the extent that funds are available from the
unexpended proceeds of the IDRs or receipts or revenues of the issuer. Payment
of IDRs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Such corporate operators or guarantors
that are industrial companies may be affected by many factors which may have an
adverse impact on the credit quality of the particular company or industry.
Hospital and Health Care Facility Bonds. The ability of hospitals and other
health care facilities to meet their obligations with respect to revenue bonds
issued on their behalf is dependent on various factors. Some such factors are
the level of payments received from private third-party payors and government
programs and the cost of providing health care services. There can be no
assurance that payments under governmental programs will remain at levels
comparable to present levels or will be sufficient to cover the costs
associated with their bonds. It also may be necessary for a hospital or other
health care facility to incur substantial capital expenditures or increased
operating expenses to effect changes in its facilities, equipment, personnel
and services. Hospitals and other health care facilities are additionally
subject to claims and legal actions by patients and others in the ordinary
course of business. There can be no assurance that a claim will not exceed the
insurance coverage of a health care facility or that insurance coverage will be
available to a facility.
Single Family and Multi-Family Housing Bonds. Multi-family housing revenue
bonds and single family mortgage revenue bonds are state and local housing
issues that have been issued to provide financing for various housing projects.
Multi-family housing revenue bonds are payable primarily from mortgage loans to
housing projects for low to moderate income families. Single-family mortgage
revenue bonds are issued for the purpose of acquiring notes secured by
mortgages on residences. The ability of housing issuers to make debt service
payments on their obligations may be affected by various economic and non-
economic factors. Such factors include: occupancy levels, adequate rental
income in multi-family projects, the rate of default on mortgage loans
underlying single family issues and the ability of mortgage insurers to pay
claims. All single family mortgage revenue bonds and certain multi-family
housing revenue bonds are prepayable over the life of the underlying mortgage
or mortgage pool. Therefore, the average life of housing obligations cannot be
determined. However, the average life of these obligations will ordinarily be
less than their stated maturities. Mortgage loans are frequently partially or
completely prepaid prior to their final stated maturities. To the extent that
these obligations were valued at a premium when a Holder purchased Units, any
prepayment at par would result in a loss of capital to the Holder and reduce
the amount of income that would otherwise have been paid to Holders.
Power Facility Bonds. The ability of utilities to meet their obligations with
respect to bonds they issue is dependent on various factors. These factors
B-4
<PAGE>
include the rates they may charge their customers, the demand for a utility's
services and the cost of providing those services. Utilities are also subject
to extensive regulations relating to the rates which they may charge customers.
Utilities can experience regulatory, political and consumer resistance to rate
increases. Utilities engaged in long-term capital projects are especially
sensitive to regulatory lags in granting rate increases. Utilities are
additionally subject to increased costs due to governmental environmental
regulation and decreased profits due to increasing competition. Any difficulty
in obtaining timely and adequate rate increases could adversely affect a
utility's results of operations. The Sponsor cannot predict at this time the
ultimate effect of such factors on the ability of any issuers to meet their
obligations with respect to Bonds.
Water and Sewer Revenue Bonds. Water and sewer bonds are generally payable
from user fees. The ability of state and local water and sewer authorities to
meet their obligations may be affected by a number of factors. Some such
factors are the failure of municipalities to utilize fully the facilities
constructed by these authorities, declines in revenue from user charges, rising
construction and maintenance costs, impact of environmental requirements, the
difficulty of obtaining or discovering new supplies of fresh water, the effect
of conservation programs, the impact of "no growth" zoning ordinances and the
continued availability of Federal and state financial assistance and of
municipal bond insurance for future bond issues.
University and College Bonds. The ability of universities and colleges to
meet their obligations is dependent upon various factors. Some of these
factors, of which an investor should be aware, are the size and diversity of
their sources of revenues, enrollment, reputation, management expertise, the
availability and restrictions on the use of endowments and other funds, the
quality and maintenance costs of campus facilities. Also, in the case of public
institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education may affect an
institution's ability to make payments on its own.
Lease Rental Bonds. Lease rental bonds are predominantly issued by
governmental authorities that have no taxing power or other means of directly
raising revenues. Rather, the authorities are financing vehicles created solely
for the construction of buildings or the purchase of equipment that will be
used by a state or local government. Thus, the bonds are subject to the ability
and willingness of the lessee government to meet its lease rental payments
which include debt service on the bonds. Lease rental bonds are subject to the
risk that the lessee government is not legally obligated to budget and
appropriate for the rental payments beyond the current fiscal year. These bonds
are also subject to the risk of abatement in many states as rental bonds cease
in the event that damage, destruction or condemnation of the project prevents
its use by the lessee. Also, in the event of default by the lessee government,
there may be significant legal and/or practical difficulties involved in the
reletting or sale of the project.
Capital Improvement Facility Bonds. The Portfolio of a Trust may contain
Bonds which are in the capital improvement facilities category. Capital
improvement bonds are bonds issued to provide funds to assist political
subdivisions or agencies of a state through acquisition of the underlying debt
of a state or local political subdivision or agency. The risks of an investment
in such bonds include the risk of possible prepayment or failure of payment of
proceeds on and default of the underlying debt.
Solid Waste Disposal Bonds. Bonds issued for solid waste disposal facilities
are generally payable from tipping fees and from revenues that may be earned by
the facility on the sale of electrical energy generated in the combustion of
waste products. The ability of solid waste disposal facilities to meet their
obligations depends upon the continued use of the facility, the successful and
efficient operation of the facility and, in the case of waste-to-energy
facilities, the continued ability of the facility to generate
B-5
<PAGE>
electricity on a commercial basis. Also, increasing environmental regulation on
the federal, state and local level has a significant impact on waste disposal
facilities. While regulation requires more waste producers to use waste
disposal facilities, it also imposes significant costs on the facilities.
Moral Obligation Bonds. The Trust may also include "moral obligation" bonds.
If an issuer of moral obligation bonds is unable to meet its obligations, the
repayment of the bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question. Thus, such a commitment generally
requires appropriation by the state legislature and accordingly does not
constitute a legally enforceable obligation or debt of the state. The agencies
or authorities generally have no taxing power.
Refunded Bonds. Refunded Bonds are typically secured by direct obligations of
the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally noncallable prior to maturity or the predetermined redemption date.
In a few isolated instances to date, however, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.
Airport, Port and Highway Revenue Bonds. Certain facility revenue bonds are
payable from and secured by the revenues from the ownership and operation of
particular facilities, such as airports, highways and port authorities. Airport
operating income may be affected by the ability of airlines to meet their
obligations under the agreements with airports. Similarly, payment on bonds
related to other facilities is dependent on revenues from the projects, such as
use fees from ports, tolls on turnpikes and bridges and rents from buildings.
Therefore, payment may be adversely affected by reduction in revenues due to
such factors and increased cost of maintenance or decreased use of a facility.
The Sponsor cannot predict what effect conditions may have on revenues which
are dependent for payment on these bonds.
Special Tax Bonds. Special tax bonds are payable from and secured by the
revenues derived by a municipality from a particular tax. Examples of such
special taxes are a tax on the rental of a hotel room, on the purchase of food
and beverages, on the rental of automobiles or on the consumption of liquor.
Special tax bonds are not secured by the general tax revenues of the
municipality, and they do not represent general obligations of the
municipality. Therefore, payment on special tax bonds may be adversely affected
by a reduction in revenues realized from the underlying special tax. Also,
should spending on the particular goods or services that are subject to the
special tax decline, the municipality may be under no obligation to increase
the rate of the special tax to ensure that sufficient revenues are raised from
the shrinking taxable base.
Tax Allocation Bonds. Tax allocation bonds are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds are located. Such payments
are expected to be made from projected increases in tax revenues derived from
higher assessed values of property resulting from development in the particular
project area and not from an increase in tax rates. Special risk considerations
include: reduction of, or a less than anticipated increase in, taxable values
of property in the project area; successful appeals by property owners of
assessed valuations; substantial delinquencies in the payment of property
taxes; or imposition of any constitutional or legislative property tax rate
decrease.
Transit Authority Bonds. Mass transit is generally not self-supporting from
fare revenues. Therefore, additional financial resources must be made available
to ensure operation of mass transit systems as well as the timely payment of
debt
B-6
<PAGE>
service. Often such financial resources include Federal and state subsidies,
lease rentals paid by funds of the state or local government or a pledge of a
special tax. If fare revenues or the additional financial resources do not
increase appropriately to pay for rising operating expenses, the ability of the
issuer to adequately service the debt may be adversely affected.
Convention Facility Bonds. The Portfolio of a Trust may contain Bonds of
issuers in the convention facilities category. Bonds in the convention
facilities category include special limited obligation securities issued to
finance convention and sports facilities payable from rental payments and
annual governmental appropriations. The governmental agency is not obligated to
make payments in any year in which the monies have not been appropriated to
make such payments. In addition, these facilities are limited use facilities
that may not be used for purposes other than as convention centers or sports
facilities.
Correctional Facility Bonds. The Portfolio of a Trust may contain Bonds of
issuers in the correctional facilities category. Bonds in the correctional
facilities category include special limited obligation securities issued to
construct, rehabilitate and purchase correctional facilities payable from
governmental rental payments and/or appropriations.
Puerto Rico Bonds. Certain of the Bonds in the Trust may be general
obligations and/or revenue bonds of issuers located in Puerto Rico. These 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 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).
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 lowest annual unemployment rate in more than two decades.
According to the Labor Department's Household Employment Survey, during fiscal
1999, total employment increased 0.9% over fiscal 1998. Total monthly
employment averaged 1,147,000 in fiscal 1999, compared to 1,137,400 in fiscal
1998. The seasonally adjusted unemployment rate for January 2000 was 11.9%.
According to the Labor Department's Household Employment Survey, during the
first seven months of fiscal 2000, total employment increased 0.4% over the
same period in fiscal 1999. Total monthly employment averaged 1,138,6000 during
the first seven months of fiscal 2000, compared to 1,134,400 in the same period
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 and an increase of 2.3%
for fiscal 2001. The performance of the economy during fiscal 2000 and 2001
will be effected principally by the performance of the United States economy
and by the increase in oil prices and, to a lesser extent, by the level of
interest rates. Since Puerto Rico is heavily dependent on oil imports for its
energy needs, if the level of oil prices remain at their current high levels,
this may adversely affect economic activity in Puerto Rico during the remainder
of fiscal 2000 and during fiscal 2001.
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
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Company ("Asset Guaranty"), Capital Markets Assurance Corp. ("CAPMAC"), Connie
Lee Insurance Company ("Connie Lee"), Financial Guaranty Insurance Company
"Financial Guaranty"), Financial Security Assurance Inc. ("FSA"), or MBIA
Insurance Corporation ("MBIA") (collectively, the "Insurance Companies"). The
claims-paying ability of each of these companies, unless otherwise indicated,
is rated AAA by Standard & Poor's or another acceptable national rating
service. Standard & Poor's has assigned an A claims-paying ability to ACA and
an AA claims-paying ability to AGI. The ratings are subject to change at any
time at the discretion of the rating agencies.
The cost of this insurance is borne either by the issuers or previous owners
of the bonds. The Sponsor does not insure the bonds in conjunction with their
deposit in a Trust and makes no representations with regard to the adequacy of
the insurance covering any of the Insured Bonds. The insurance policies are
non-cancellable and will continue in force so long as the bonds are outstanding
and the insurers remain in business. The insurance policies guarantee the
timely payment of principal and interest on the Insured Bonds. However, the
insurance policies do not guarantee the market value of the Insured Bonds or
the value of the Units. The above information relating to the Insurance
Companies has been obtained from publicly available information. No
representation is made as to the accuracy or adequacy of the information or as
to the absence of material adverse changes since the information was made
available to the public.
Litigation and Legislation
To the best knowledge of the Sponsor, there is no litigation pending as of
the Date of Deposit in respect of any Bonds which might reasonably be expected
to have a material adverse effect upon the Trust. At any time after the Date of
Deposit, litigation may be initiated on a variety of grounds, or legislation
may be enacted, with respect to Bonds in the Trust. Litigation, for example,
challenging the issuance of pollution control revenue bonds under environmental
protection statutes may affect the validity of Bonds or the tax-free nature of
their interest. While the outcome of litigation of this nature can never be
entirely predicted, opinions of bond counsel are delivered on the date of
issuance of each Bond to the effect that the Bond has been validly issued and
that the interest thereon is exempt from regular Federal income tax. In
addition, other factors may arise from time to time which potentially may
impair the ability of issuers to make payments due on the Bonds.
Tax Exemption
From time to time Congress considers proposals to tax the interest on state
and local obligations, such as the Bonds. The Supreme Court has concluded that
the U.S. Constitution does not 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,
insurance companies or anyone who holds the Units as part of a hedge or
straddle.
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
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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 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.
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,
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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 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 sells, exchanges or redeems 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
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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, 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 bond counsel has opined that
none of the Bonds in the Trust are 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
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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, 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.
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The Evaluator's fee, which is earned for Bond evaluations, is received for
each evaluation of the Bonds in a Trust as set forth under Summary of Essential
Information.
The Sponsor's fee, which is earned for trust supervisory services, is based
on the largest number of Units outstanding during the year. The Sponsor's fee,
which is not to exceed the maximum amount set forth under Summary of Essential
Information, may exceed the actual costs of providing supervisory services for
the Trust. However, at no time will the total amount the Sponsor receives for
trust supervisory services rendered to all series of Tax Exempt Securities
Trusts in any calendar year exceed the aggregate cost to it of supplying these
services in that year. In addition, the Sponsor may also be reimbursed for
bookkeeping or other administrative services provided to the Trust in amounts
not exceeding its cost of providing those services.
The fees of the Trustee, Evaluator and Sponsor may be increased without
approval of Holders in proportion to increases under the classification "All
Services Less Rent" in the Consumer Price Index published by the United States
Department of Labor.
Other Charges
The following additional charges are or may be incurred by a Trust: all
expenses of the Trustee (including fees and expenses of counsel and auditors)
incurred in connection with its activities under the Trust Agreement, including
reports and communications to 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
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incurred in organizing and offering a Trust. After the initial public offering
period, the Public Offering Price of the Units of a Trust will be determined by
adding to the Evaluator's determination of the aggregate bid price of the Bonds
per Unit a sales charge equal to 5.00% of the Public Offering Price (5.263% of
the aggregate bid price of the Bonds per Unit). A proportionate share of
accrued and undistributed interest on the Bonds in a Trust at the date of
delivery of the Units to the purchaser is also added to the Public Offering
Price.
During the initial public offering period, the sales charge and dealer
concession for the Trusts will be reduced as follows:
<TABLE>
<CAPTION>
Percent of Percent of
Public Net Amount Dealer
Units Purchased+ Offering Price Invested Concession
---------------- -------------- ---------- ----------
<S> <C> <C> <C>
1-99 4.70% 4.932% $33.00
100-249 4.25% 4.439% $32.00
250-499 4.00% 4.167% $30.00
500-999 3.50% 3.627% $25.00
1,000 or more 3.00% 3.093% $20.00
</TABLE>
------------
+ The reduced sales charge is also applied on a dollar basis utilizing a
breakpoint equivalent in the above table of $1,000 for one Unit, etc. Units
held in the name of the spouse or child under the age of 21 of the purchaser
are deemed to be registered in the name of the purchaser for purposes of
calculating the applicable sales charge.
The holders of units of any unit investment trust (the "Exchangeable Series")
may exchange units of the Exchangeable Series for Units of a Trust of this
Series at their relative net asset values, subject to a fixed sales charge of
$25 per Unit. See "Exchange Option" herein.
The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.
Employees of the Sponsor and its subsidiaries, affiliates and employee-
related accounts may purchase Units at a Public Offering Price equal to the
Evaluator's determination of the aggregate offering price of the Bonds per Unit
plus a sales charge of .50%. In addition, during the initial public offering
period a portion of the Public Offering Price per Unit also consists of cash in
an amount sufficient to pay the per Unit portion of all or a part of the cost
incurred in organizing and offering a Trust. After the initial public offering
period such purchases may be made at a Public Offering Price equal to the
Evaluator's determination of the aggregate bid price of the Bonds per Unit plus
a sales charge of .50%. Sales through such plans to employees of the Sponsor
result in less selling effort and selling expenses than sales to the general
public. Participants in the Smith Barney Asset OneSM Program and in the
Reinvestment Program of any series of the Trust may purchase Units at a Public
Offering Price equal to the Evaluator's determination of the aggregate offering
price of the Bonds (plus cash held by the Trust for organization and offering
costs) per Unit during the initial offering period and after the initial
offering period at a Public Offering Price equal to the Evaluator's
determination of the aggregate bid price of the Bonds per Unit. Participants in
the Smith Barney Asset OneSM Program are subject to certain fees for specified
securities brokerage and execution services.
Method of Evaluation
During the initial public offering period, the aggregate offering price of
the Bonds is determined by the Evaluator (1) on the basis of current offering
prices for Bonds, (2) if offering prices are not available for any Bonds, on
the basis of current offering prices for comparable securities, (3) by
appraisal, or (4) by any combination of the above. Such determinations are made
each business day as of the Evaluation Time set forth in the Summary of
Essential Information. Following the initial public offering period, the
aggregate bid price of the Bonds will be determined by the Evaluator (1) on the
basis of the current bid prices for the Bonds, (2) if bid prices are not
available for any Bonds, on the
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basis of current bid prices of comparable securities, (3) by appraisal, or (4)
by any combination of the above. Such determinations will be made each business
day as of the Evaluation Time set forth in the Summary of Essential
Information. The term "business day," as used herein shall exclude Saturdays,
Sundays and any day on which the New York Stock Exchange is closed. The
difference between the bid and offering prices of the Bonds may be expected to
average approximately 1 1/2% of principal amount of the Bonds. In the case of
actively traded securities, the difference may be as little as 1/2 of 1%, and
in the case of inactively traded securities such difference will usually not
exceed 3%. On the Date of Deposit for each Trust the aggregate current offering
price of such Bonds per Unit exceeded the bid price of such Bonds per Unit by
the amounts set forth under Summary of Essential Information.
Distribution of Units
During the initial public offering period Units of a Trust will be
distributed to the public at the Public Offering Price through the Underwriters
and dealers. The initial public offering period is 30 days unless all Units of
a Trust are sold prior thereto, in which case the initial public offering
period terminates with the sale of all Units. So long as all Units initially
offered have not been sold, the Sponsor may extend the initial public offering
period for up to four additional successive 30-day periods. Upon completion of
the initial public offering, Units which remain unsold or which may be acquired
in the secondary market may be offered by this Prospectus at the Public
Offering Price determined in the manner provided for secondary market sales.
It is the Sponsor's intention to qualify Units of a Trust for sale through
the Underwriters and dealers who are members of the National Association of
Securities Dealers, Inc. Units of a State Trust will be offered for sale only
in the State for which the Trust is named, except that Units of a New York
Trust will also be offered for sale to residents of the State of Connecticut,
the State of Florida and the Commonwealth of Puerto Rico. Units will initially
be sold to dealers at prices which represent a concession equal to the amount
designated in the tables under "Public Offering--Offering Price." The Sponsor
reserves the right to change the amount of the concession to dealers from time
to time and to vary the amount of the concession to affiliated dealers. 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
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Trust (the "Exchange Trust") available for sale in the state in which the
Holder resides. Such exchange will be at a Public Offering Price for the units
of the Exchange Trust to be acquired based on a fixed sales charge of $25 per
unit. The terms of the Exchange Option will also apply to holders who wish to
exchange units of an Exchangeable Series for Units of a Trust of this Series.
The Sponsor reserves the right to modify, suspend or terminate this plan at any
time without further notice to Holders. Therefore, there is no assurance that
the Exchange 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
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Sponsor receives a gross commission equal to the applicable sales charge for
any Units they have underwritten, and receive the difference between the
applicable sales charge and the Underwriter's commission for the remainder of
the Units. In addition, the Sponsor may realize profits or sustain losses in
the amount of any difference between the cost of the Bonds to a Trust and the
purchase price of such Bonds to the Sponsor. Under certain circumstances, an
Underwriter may be entitled to share in such profits, if any, realized by the
Sponsor. The Sponsor may also realize profits or sustain losses with respect to
Bonds deposited in a Trust which were acquired from its own organization or
from underwriting syndicates of which it was a member. During the initial
public offering period the Underwriters also may realize profits or sustain
losses as a result of fluctuations after the Date of Deposit in the offering
prices of the Bonds and hence in the Public Offering Price received by the
Underwriters for Units. Cash made available to the Sponsor prior to the
anticipated first settlement date for the purchase of Units may be used in the
Sponsor's businesses to the extent permitted by applicable regulations.
In maintaining a market for the Units the Sponsor will also realize profits
or sustain losses in the amount of any difference between the price at which
they buy such Units and the price at which they resell or redeem such Units.
RIGHTS OF HOLDERS
Certificates
Ownership of Units may be evidenced by registered certificates executed by
the Trustee and the Sponsor. Certificates are transferable by presentation and
surrender to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Holder may be required to pay $2.00 per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Holder must furnish
indemnity satisfactory to the Trustee and must pay such expenses as the Trustee
may incur. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distribution of Interest and Principal
Interest and principal received by a Trust will be distributed on each
monthly Distribution Date on a pro rata basis to Holders of record in such
Trust as of the preceding Record Date. All distributions will be net of
applicable expenses and funds required for the redemption of Units and, if
applicable, reimbursements to the Trustee for interest payments advanced to
Holders on previous Distribution Dates.
The Trustee will credit to the Interest Account of a Trust all interest
received by such Trust, including that part of the proceeds of any disposition
of Bonds of such Trust which represents accrued 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
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receive their first distribution on the second Distribution Date following
their purchase of Units. No distribution need be made from the Principal
Account if the balance therein is less than an amount sufficient to distribute
$5.00 per Unit. The Monthly Income Distribution per Unit initially will be in
the amount shown under Summary of Essential Information for a Trust. The
Monthly Income Distribution will change as the income and expenses of such
Trust change and as Bonds are exchanged, redeemed, paid or sold.
Normally, interest on the Bonds is paid on a semi-annual basis. Because Bond
interest is not received by a Trust at a constant rate throughout the year any
Monthly Income Distribution may be more or less than the amount credited to the
Interest Account as of the Record Date. In order to eliminate fluctuations in
Monthly Income Distributions resulting from such variances, the Trustee is
required by the Trust Agreement to advance such amounts as may be necessary to
provide Monthly Income Distributions of approximately equal amounts. The
Trustee will then be reimbursed, without interest, for any such advances from
funds available from the Interest Account on the next ensuing Record Date. If
all or a portion of the Bonds for which advances have been made subsequently
fail to pay interest when due, the Trustee may recoup such advances by reducing
the amount distributed per Unit in one or more Monthly Interest Distributions.
If Units are redeemed subsequent to such advances by the Trustee, each
remaining Holder will be subject to a greater pro rata reduction in his Monthly
Interest Distribution. To the extent it is unable to recoup advances from the
Interest Account, the Trustee is also entitled to withdraw from the Principal
Account. Funds which are available for future distributions, payments of
expenses and redemptions are in accounts which are non-interest bearing to
Holders and are available for use by The Chase Manhattan Bank pursuant to
normal banking procedures. The Trustee is entitled to the benefit of any
reasonable cash balances in the Income and Principal Accounts. Because of the
varying interest payment dates of the Bonds, accrued interest may at any point
in time be greater than the amount of interest distributed to Holders. This
excess accrued but undistributed interest amount will be added to the value of
the Units on any purchase made after the Date of Deposit. If a Holder sells all
or a portion of his Units a portion of his sale proceeds will be allocable to
his proportionate share of the accrued interest. Similarly, if a Holder redeems
all or a portion of his Units, the Redemption Price per Unit which he is
entitled to receive from the Trustee will also include his accrued interest on
the Bonds.
As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust amounts necessary to pay the expenses of such Trust. To the
extent there are not sufficient funds in the Interest Account to pay Trust
expenses, the Trustee is also entitled to withdraw from the Principal Account.
The Trustee also may withdraw from the accounts such amounts it deems necessary
to establish a reserve for any governmental charges payable out of a Trust.
Amounts so withdrawn shall not be considered a part of the Trust's assets until
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
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advances to a Trust (without interest or other cost to such Trust) from
interest received on the Bonds deposited in such Trust.
Reports and Records
The Trustee shall furnish Holders in connection with each distribution a
statement of the amount of interest and the amount of other receipts which are
being distributed, expressed in each case as a dollar amount per Unit. In the
event that the issuer of any of the Bonds fails to make payment when due of any
interest or principal and such failure results in a change in the amount which
would otherwise be distributed as a monthly distribution, the Trustee will,
with the first such distribution following such failure, set forth in an
accompanying statement, the issuer and the Bond, the amount of the reduction in
the distribution per Unit resulting from such failure, the percentage of the
aggregate principal amount of Bonds which such Bond represents and information
regarding any disposition or legal action with respect to such Bond. Within a
reasonable time after the end of each calendar year, the Trustee will furnish
to each person who at any time during the calendar year was a Holder of record,
a statement (1) as to the Interest Account: interest received, deductions for
payment of applicable taxes and for fees and expenses of a Trust, redemptions
of Units and the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (2) as to the Principal Account: the dates of disposition of any
Bonds and the net proceeds received therefrom (excluding any portion
representing interest), deductions for payments of applicable taxes and for
fees and expenses of a Trust, redemptions of Units, and the balance remaining
after such distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (3) a list of the
Bonds held and the number of Units outstanding on the last business day of such
calendar year; (4) the Redemption Price per Unit based upon the last
computation thereof made during such calendar year; and (5) amounts actually
distributed during such calendar year from the Interest Account and from the
Principal Account. The accounts of a Trust shall be audited not less frequently
than annually by independent auditors designated by the Sponsor, and the report
of such auditors shall be furnished by the Trustee to Holders upon request.
The Trustee shall keep available for inspection by Holders at all reasonable
times during usual business hours, books of record and account of its
transactions as Trustee including records of the names and addresses of
Holders, certificates issued or held, a current list of Bonds in the Portfolio
of a Trust and a copy of the Trust Agreement.
Redemption of Units
Units may be tendered to the Trustee for redemption at its unit investment
trust office at 4 New York Plaza, New York, New York 10004, upon payment of any
relevant tax. At the present time there are no specific taxes related to the
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
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deemed to be the date on which Units are received by the Trustee, except as
regards Units received after the close of trading on the New York Stock
Exchange, the date of tender is the next day on which such Exchange is open for
trading.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal
Account. All other amounts paid on redemption shall be withdrawn from the
Principal Account. The Trustee is empowered to sell Bonds in order to make
funds available for redemption. Such sales could result in a sale of Bonds by
the Trustee at a loss. To the extent Bonds are sold the size and diversity of a
Trust will be reduced.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed or trading on that Exchange
is restricted or during which (as determined by the Securities and Exchange
Commission) an emergency exists as a result of which disposal or evaluation of
the underlying Bonds is not reasonably practicable, or for such other periods
as the Securities and Exchange Commission has by order permitted.
Computation of Redemption Price per Unit
The Redemption Price per Unit of a Trust is determined by the Trustee on the
basis of the bid prices of the Bonds in such Trust as of the Evaluation Time on
the date any such determination is made. The Redemption Price per Unit of a
Trust is each Unit's pro rata share, determined by the Trustee, of: (1) the
aggregate value of the Bonds in such Trust on the bid side of the market
(determined by the Evaluator as set forth below), (2) cash on hand in such
Trust (other than funds covering contracts to purchase Bonds), and accrued and
unpaid interest on the Bonds as of the date of computation, less (a) amounts
representing taxes or governmental charges payable out of such Trust, (b) the
accrued expenses of such Trust, and (c) cash held for distribution to Holders
of such Trust of record as of a date prior to the evaluation. As of the close
of the initial public offering period the Redemption Price per Unit will be
reduced to reflect the organization costs per Unit of a Trust. To the extent
that actual organization costs are less than the estimated amount, only the
actual organization costs will be deducted from the assets of a Trust.
Purchase by the Sponsor of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the Sponsor of any
tender of Units for redemption. So long as the Sponsor maintains a bid in the
secondary market, the Sponsor, prior to the close of business on the second
succeeding business day, will purchase any Units tendered to the Trustee. Such
a purchase by the Sponsor will be at the price so bid by making payment to the
Holder in an amount not less than the Redemption Price and not later than the
day on which the Units would otherwise have been redeemed by the Trustee.
The offering price of any Units resold by the Sponsor will be the Public
Offering Price 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
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securities broker-dealer firm, is a member of the New York Stock Exchange, Inc.
and other major securities and commodities exchanges, the National Association
of Securities Dealers, Inc. and the Securities Industry Association. Salomon
Smith Barney is an indirect wholly-owned subsidiary of Citigroup Inc. Salomon
Smith Barney or an affiliate is investment adviser, principal underwriter or
distributor of 60 open-end investment companies and investment manager of 12
closed-end investment companies. Salomon Smith Barney also sponsors all Series
of Corporate Securities Trust, Government Securities Trust, Harris, Upham Tax-
Exempt Fund and Tax Exempt Securities Trust, and acts as sponsor of most Series
of Defined Assets Funds.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising from its
responsibilities under the Trust Agreement, but will be under no liability to
Holders for taking any action or refraining from any action in good faith or
for errors in judgment. The Sponsor shall also not be responsible in any way
for depreciation or loss incurred by reason of the sale of any Bonds, except in
cases of willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
Responsibility
Although the Trusts are not actively managed as mutual funds are, the
portfolios are reviewed periodically on a regular cycle. The Sponsor is
empowered to direct the Trustee to dispose of Bonds when certain events occur
that adversely affect the value of the Bonds. Such events include: default in
payment of interest or principal, default in payment of interest or principal
on other obligations of the same issuer, institution of legal proceedings,
default under other documents adversely affecting debt service, decline in
price or the occurrence of other market or credit factors, or decline in
projected income pledged for debt service on revenue Bonds and advanced
refunding that, in the opinion of the Sponsor, may be detrimental to the
interests of the Holders. The Sponsor intends to provide Portfolio supervisory
services for each Trust in order to determine whether the Trustee should be
directed to dispose of any such Bonds.
It is the responsibility of the Sponsor to instruct the Trustee to reject any
offer made by an issuer of any of the Bonds to issue new obligations in
exchange and substitution for any Bonds pursuant to a refunding or refinancing
plan. However, the Sponsor may instruct the Trustee to accept such an offer or
to take any other action with respect thereto as the Sponsor may deem proper if
the issuer is in default with respect to such Bonds or in the judgment of the
Sponsor the issuer will probably default in respect to such Bonds in the
foreseeable future.
Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Trust Agreement to the same
extent as Bonds originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Bonds the
Trustee is required to give notice thereof to each Holder, identifying the
Bonds eliminated and 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
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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 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
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shall become effective upon the acceptance of appointment by a successor
evaluator. If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the Evaluator may
apply to a court of competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
Amendment
The Sponsor and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Holders when such an amendment is (1) to cure
any ambiguity or to correct or supplement any provision of the Trust Agreement
which may be defective or inconsistent with any other provision contained
therein, or (2) to make such other provisions as shall not adversely affect the
interests of the Holders. However, the Trust Agreement may not be amended to
increase the number of Units issuable or to permit the deposit or acquisition
of securities either in addition to or in substitution for any of the Bonds
initially deposited in a Trust. In the event of any amendment, the Trustee is
obligated to notify promptly all Holders of the substance of such amendment.
Termination
The Trust Agreement provides that if the principal amount of Bonds held in
Trust is less than 50% of the principal amount of the Bonds originally
deposited in such Trust, the Trustee may in its discretion and will, when
directed by the Sponsor, terminate such Trust. A Trust may be terminated at any
time by 100% of the Holders. However, in no event may a Trust continue beyond
the Mandatory Termination Date set forth under "Summary of Essential
Information." In the event of termination, written notice thereof will be sent
by the Trustee to all Holders. Within a reasonable period after termination,
the Trustee will sell any Bonds remaining in the affected Trust. Then after
paying all expenses and charges incurred by such Trust, the Trustee will
distribute to each Holder, upon surrender for cancellation of his certificate
for Units, his pro rata share of the balances remaining in the Interest and
Principal Account of such Trust.
MISCELLANEOUS
Legal Opinion
The legality of the Units has been passed upon by Paul, Hastings, Janofsky &
Walker LLP, 399 Park Avenue, New York, New York 10022, as special counsel for
the Sponsor.
Auditors
The statements of financial condition and the portfolios of securities
included in this Prospectus have been audited by KPMG LLP, independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
Performance Information
Sales material may compare tax-equivalent yields of long-term municipal bonds
to long-term U.S. Treasury bonds and to the Bond Buyer Revenue Bond Index. Such
information is based on past performance and is not indicative of future
results. Yields on taxable investment are generally higher than those of tax-
exempt securities of comparable maturity. While income from municipal bonds is
exempt from federal income taxes, income from Treasuries is exempt from state
and local taxes. Since Treasuries are considered to have the highest possible
credit quality, the difference in yields is somewhat narrower than if compared
to corporate bonds with similar ratings and maturities.
BOND RATINGS+
All ratings shown under Part A, "Portfolio of Securities", except those
identified otherwise, are by Standard & Poor's.
------------
+ As described by the rating agencies.
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Standard & Poor's
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees. The bond
rating is not a recommendation to purchase or sell a security, inasmuch as it
does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to Standard & Poor's by
the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal, and in the majority of instances they differ from AAA issues only in
small degrees.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher-rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher-rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "BB" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" following a rating indicates the rating
is provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.
Conditional rating(s), indicated by "Con" are given to bonds for which the
continuance of the security rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows and/or the security rating is conditional upon the
issuance of insurance by the respective insurance company.
Moody's
A brief description of the applicable Moody's rating symbols and their
meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest
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.
New Jersey Trust
Risk Factors--Prospective investors should consider the recent financial
difficulties and pressures which the State of New Jersey (the "State") and
certain of its public authorities have undergone.
The State's 2000 Fiscal Year budget became law on June 30, 1999.
Pursuant to the State Constitution, no money may be drawn from the State
Treasury except for appropriations made by law. In addition, all monies for the
support of State purposes must be provided for in one general appropriation law
covering one and the same fiscal year.
In addition to the Constitutional provisions, the New Jersey statutes contain
provisions concerning the budget and appropriation system. Under these
provisions, each unit of the State requests an appropriation from the Director
of the Division of Budget and Accounting, who reviews the budget requests and
forwards them with his recommendations to the Governor. The Governor then
transmits his recommended expenditures and sources of anticipated revenue to
the legislature, which reviews the Governor's Budget Message and submits an
appropriations bill to the Governor for his signature by July 1 of each year.
At the time of signing the bill, the Governor may revise appropriations or
anticipated revenues. That action can be reversed by a two-thirds vote of each
House. No supplemental appropriation may be enacted after adoption of the act,
except where there are sufficient revenues on hand or anticipated, as certified
by the Governor, to meet the appropriation. Finally, the Governor may, during
the course of the year, prevent the expenditure of various appropriations when
revenues are below those anticipated or when he determines that such
expenditure is not in the best interest of the State.
During 1998 a continuation of the national business expansion, a strong
business climate in New Jersey and positive developments in surrounding
metropolitan areas were major sources of State economic growth.
Average employment in 1998 increased by 76.5 thousand jobs compared to 1997.
Job gains were spread across a number of industries with particularly strong
growth in business services (20,900) and in wholesale and retail trade
(18,000).
For the last decade, New Jersey's job growth has been concentrated in five
clusters of economic activity--high technology, health, financial,
entertainment and logistics. One of every three of the State's workers are in
these sectors, and as a whole these sectors accounted for a 19 percent
C-1
<PAGE>
increase in employment over the past decade compared to a four percent
employment growth for all other State industries.
Personal income in New Jersey, spurred by strong labor markets increased by
5.4 percent in 1998, a rate comparable to the national rate of increase. As a
result, retail sales rose by an
estimated 6.2 percent. Low inflation, now less than 2 percent, continues to
benefit New Jersey consumers and businesses and low interest rates boost
housing and consumer durable expenditures. Home building had its best year of
the decade.
Joblessness fell in terms of both its absolute level and its rate, and by the
end of 1998, New Jersey's unemployment rate was at or below that of the nation.
The outlook for 1999/2000 is for continued, although more moderate economic
growth. Job gains in the State may be constrained at times by labor shortages
in skilled technical areas, will be in the 50,000 range and personal income
growth will slow to an average of 4.3%.
Major caveats and uncertainties in the economic forecast for 1999/2000 have
increased. The national conditions in energy, agriculture and
manufactured exports, particularly to Asian markets, are threats to the U.S.
economy. However, these areas of economic activity are under-represented in New
Jersey and hence the State has been able to avoid the immediate and direct
effects of those problems.
Other areas of concern include possible significant shifts in consumer and
investor confidence, unstable and potentially deflationary international
economic conditions, and the prospect of leaner profits for U.S. corporations.
In addition, the restructuring of major industries will continue spurred by the
imperative of cost containment, globalization of competition, and deregulation.
Thus, 1999/2000 contains more risk than the recent past,
but the momentum and measures of the State's economic health are favorable.
The New Jersey outlook is based largely on expected national economic
performance and on recent State strategic policy actions aimed at
infrastructure improvements, effective education and training of our workforce,
and those maintaining a competitive business climate. Investments in each of
these policy areas are seen as vital to maintaining the long-term health of the
State's economy.
State Aid to Local Governments is the largest portion of Fiscal Year 2000
recommendations. In fiscal year 2000, $7,904.6 million of the State's
recommendations consist of funds which are distributed to municipalities,
counties and school districts. The largest recommended State Aid appropriation,
in the amount of $6,096.5 million, is provided for local elementary and
secondary education programs. Of this amount $2,845.1 is for core curriculum
standards, $312.7 million is for early childhood aid, $254.4 million is Abbott
v. Burke Parity Remedy aid, $265.8 million is for pupil transportation aid and
$682.3 million is for special education. Also, $88.5 million provides nonpublic
school aid and $149.1 million pays debt service on school bonds. Other
significant amounts are $143.7 million for supplemental core curriculum
standards aid and $190.5 million for demonstrably effective
program aid. In addition, $700.4 million is recommended on behalf of school
districts as the employers share of the social security and teachers' pensions
and benefits programs.
As a result of the decision on May 21, 1998 of the New Jersey Supreme Court
in Abbott v. Burke the State may be required to undertake certain additional
instructional and support programs for children in the "Abbott" school
districts. The State is unable to estimate its exposure.
Appropriations to the State Department of Community Affairs ("DCA") total
$898.4 million in State Aid monies for Fiscal Year 2000. The
C-2
<PAGE>
Consolidated Municipal Property Tax Relief Act is recommended in the amount of
$767.9 million. In addition there is $16.7 million appropriated for housing
programs, $33.0 million for block grant programs, $30 million for extraordinary
aid and $40.5 million as special assistance to specific cities and $10.0
million for the Regional Efficiency Development Incentive Grant Program.
Appropriations to the State Department of the Treasury total $422.8 million in
State Aid monies for Fiscal Year 2000. The principal programs funded by these
recommended appropriations are aid to county colleges ($174.4 million); the
cost of senior citizens, disabled and veterans property tax deductions and
exemptions ($51.2 million); $20.0 million for debt service for county
investments in solid waste management facilities; and the State contributions
to the Consolidated Police and Firemen's Pension Funds ($49.4 million). Also,
$112.0 million is appropriated for school renovation and construction funded by
a portion of the increased cigarette tax ($50.0 million) and the new "Big Game"
lottery ($62.0 million).
The second largest portion of appropriations in Fiscal Year 2000 is for
grants-in-aid. These represent payments to individuals or public or private
agencies for benefits to which a recipient is entitled to by law, or for
provision of services on behalf of the State. The amount appropriated in Fiscal
Year 2000 for grants-in-aid is $5,976.4 million.
$2,296.0 million is recommended for programs administered by the State
Department of Human Services. Of that amount, $1,403.3 million is for medical
services provided under the Medicaid program, $246.5 million is for community
programs for the developmentally disabled, $208.0 million is for community
programs for the mentally ill; $258.7 million is for grant programs
administered by the Division of Youth and Family Services, and $146.6 million
is for welfare reform and homeless services.
The State Department of Health and Senior Services is appropriated $1,127.3
million. Of that
amount, $633.3 million is for medical services provided under the Medicaid
program, $242.5 million is for pharmaceutical assistance to the aged and
disabled, $99.7 million is for hospital charity care and KidCare, $70.8 million
is for the Lifeline Program; $39.7 million is for addiction and AIDS Services,
and $10.3 million is for the proposed Elder Care Program.
$1,076.5 million is recommended for the State Department of Law and Public
Safety and the Department of Corrections.
$149.2 million is recommended for the State Department of Transportation for
the various programs it administers, such as the maintenance and improvement of
the State highway system and subsidies for railroads and bus companies.
$189.7 million is recommended for the State Department of Environmental
Protection for the protection of air, land, water, forest, wildlife, and
shellfish resources and for the provision of outdoor recreational facilities.
$54.9 million is recommended to the Department of Labor for the
administration of programs for workers compensation, unemployment and temporary
disability insurance, manpower development and health safety inspection.
The primary method for State financing of capital projects is through the
sale of the general obligation bonds of the State. These bonds are backed by
the full faith and credit of the State. State
tax revenues and certain other fees are pledged to meet the principal and
interest payments and if provided, redemption premium payments required to pay
the debt fully. No general obligation debt can be issued by the State without
prior voter approval, except that no voter approval is required for any law
authorizing the creation of a debt for the purpose of refinancing all or a
portion of outstanding debt of the State, so long as such law requires that the
refinancing provide a debt service savings.
C-3
<PAGE>
New Jersey Taxes--
In the opinion of Messrs. Drinker Biddle & Shanley LLP, special New Jersey
counsel on New Jersey tax matters, under existing law:
The proposed activities of the New Jersey Trust will not cause it to be
subject to the New Jersey Corporation Business Tax Act.
The income of the New Jersey Trust will be treated as the income of
individuals, estates and trusts who are the Holders of Units of the New
Jersey Trust for purposes of the New Jersey Gross Income Tax Act, and
interest which is exempt from tax under the New Jersey Gross Income Tax Act
when received by the New Jersey Trust will retain its status as tax-exempt
in the hands of such Unit Holders. Gains arising from the sale or
redemption by a Holder of his Units or from the sale, exchange, redemption,
or payment at maturity of a Bond by the New Jersey Trust are exempt from
taxation under the New Jersey Gross Income Tax Act (P.L. 1976 c. 47), as
enacted and construed on the date hereof, to the extent such gains are
attributable to Bonds, the interest on which is exempt from tax under the
New Jersey Gross Income Tax Act. Any loss realized on such disposition may
not be utilized to offset gains realized by such Unit Holder on the
disposition of assets the gain on which is subject to the New Jersey Gross
Income Tax Act.
Units of the New Jersey Trust may be subject, in the estates of New
Jersey residents, to taxation under the Transfer Inheritance Tax Law of the
State of New Jersey.
C-4
<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 New Jersey and filing a Joint Return with $53,000 in taxable income
for the 2000 tax year would need a taxable investment yielding 8.54% in order
to equal a tax-free return of 6.00%. Use the appropriate table to find your tax
bracket. Read across to determine the approximate taxable yield you would need
to equal a return free of Federal income tax and state income tax.
C-5
<PAGE>
STATE OF NEW JERSEY
2000 Tax Year
<TABLE>
<CAPTION>
Approx. Combined TAX EXEMPT YIELD
Taxable Federal & State 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
Income Bracket Tax Rate
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 - 43,850 16.49 4.79 5.39 5.99 6.59 7.18 7.78
$ 43,851 - 50,000 29.26 5.65 6.36 7.07 7.77 8.48 9.19
$ 50,001 - 70,000 29.76 5.70 6.41 7.12 7.83 8.54 9.25
$ 70,001 - 80,000 30.52 5.76 6.48 7.20 7.92 8.64 9.36
$ 80,001 - 105,950 31.98 5.88 6.62 7.35 8.09 8.82 9.56
$105,951 - 128,950 34.82 6.14 6.90 7.67 8.44 9.20 9.97
$128,951 - 150,000 35.69 6.22 7.00 7.78 8.55 9.33 10.11
$150,001 - 161,450 36.27 6.28 7.06 7.85 8.63 9.41 10.20
$161,451 - 288,350 41.09 6.79 7.64 8.49 9.34 10.18 11.03
Over $288,350 44.56 7.21 8.12 9.02 9.92 10.82 11.72
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 - 26,250 16.49 4.79 5.39 5.99 6.59 7.18 7.78
$ 26,251 - 35,000 29.26 5.65 6.36 7.07 7.77 8.48 9.19
$ 35,001 - 40,000 30.52 5.76 6.48 7.20 7.92 8.64 9.36
$ 40,001 - 63,550 31.78 5.86 6.60 7.33 8.06 8.80 9.53
$ 63,551 - 75,000 34.62 6.12 6.88 7.65 8.41 9.18 9.94
$ 75,001 - 128,950 35.40 6.19 6.97 7.74 8.51 9.29 10.06
$128,951 - 132,600 36.27 6.28 7.06 7.85 8.63 9.41 10.20
$132,601 - 288,350 41.09 6.79 7.64 8.49 9.34 10.18 11.03
Over $288,350 44.56 7.21 8.12 9.02 9.92 10.82 11.72
-------------
</TABLE>
Note: This table reflects the following:
1 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions
(including the deduction for state income tax). However, certain itemized
deductions are reduced by the lesser of (i) three percent of the amount
of the taxpayer's AGI over $128,950, or (ii) 80 percent of the amount of
such itemized deductions otherwise allowable. The effect of the three
percent phase out on all itemized deductions and not just those
deductions subject to the phase out is reflected above in the combined
Federal and state tax rates through the used of higher effective Federal
tax rates. In addition, the effect of the 80 percent cap on overall
itemized deductions is not reflected on this table. Federal income tax
rules also provide that personal exemptions are phased out at a rate of
two effective Federal tax rates. Federal income tax rules also provide
that personal exemptions are phased out at a rate of two percent for each
$2,500 (or fraction thereof) of AGI in excess of $193,400 for married
taxpayers filing a joint tax return and $128,950 for single taxpayers.
The effect of the phase out of personal exemptions is not reflected in
the above table.
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
4 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.
C-6
<PAGE>
TAX EXEMPT SECURITIES TRUST
----------------------------------------------------------------
9,000 Units Dated November 17, 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. 333-48404 and 333-44810) 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, DC 20549-6009
--------------------------------------------------------------------------------
Index Sponsor:
<TABLE>
<S> <C>
Investment Summary A-2 Salomon Smith Barney Inc.
Summary of Essential Information A-6 7 World Trade Center
Portfolio Summary as of Date of 40th Floor
Deposit A-8 New York, New York 10048
Independent Auditors' Report A-10 (212) 816-6000
Statements of Financial Condition A-11
Portfolios A-12
Notes to Portfolios of Securities A-16
Tax Exempt Securities Trust B-1 Trustee:
Risk Factors B-2
Taxes B-8 The Chase Manhattan Bank
Expenses and Charges B-12 4 New York Plaza
Public Offering B-13 New York, New York 10004
Rights of Holders B-17 (800) 354-6565
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-5 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.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
THE REGISTRATION STATEMENT ON FORM S-6 COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:
The facing sheet of Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Registration Statement of Tax Exempt Securities Trust, Series
384, 1933 Act File No. 33-50915).
The Prospectus.
Additional Information not included in the Prospectus (Part II).
Undertakings.
Signatures.
Consent of Independent Auditors.
The following exhibits:
<TABLE>
<C> <S>
1.1 -- Form of Trust Indenture and Agreement (incorporated by reference to
Exhibit 4.a to the Registration Statement of Tax Exempt Securities
Trust, Series 265, 1933 Act File No. 33-15123).
1.1.1 -- Form of Reference Trust Agreement (incorporated by reference to
Exhibit 1.1.1 of Tax Exempt Securities Trust, National Trust 208,
1933 Act File No. 33-58591).
1.2 -- Form of Agreement Among Underwriters (incorporated by reference to
Exhibit 99 to the Registration Statement of Tax Exempt Securities
Trust, Series 384, 1933 Act File No. 33-50915).
2.1 -- Form of Certificate of Beneficial Interest (included in Exhibit 1.1).
3.1 -- Opinion of counsel as to the legality of the securities being issued
including their consent to the use of their name under the headings
"Taxes", "Miscellaneous--Legal Opinion" and "New Jersey Taxes" in the
Prospectus.
3.2 -- Opinion of special New Jersey counsel.
4.1 -- Consent of the Evaluator.
5.1 -- Consent of KPMG LLP.
</TABLE>
II-2
<PAGE>
SIGNATURES
The registrant, Tax Exempt Securities Trust, National Trust 248 and New
Jersey Trust 147, 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 17th day of November, 2000.
Signatures appear on page II-4.
A majority of the members of the Board of Directors of Salomon Smith Barney
Inc. has signed this Registration Statement or Amendment to the Registration
Statement pursuant to Powers of Attorney authorizing the person signing this
Registration Statement or Amendment to the Registration Statement to do so on
behalf of such members.
II-3
<PAGE>
Salomon Smith Barney Inc., Depositor
/s/ George S. Michinard, Jr.
By .................................
(George S. Michinard, Jr.)
By the following persons*, who
constitute a majority of the
directors of Salomon Smith Barney
Inc.:
Deryck C. Maughan
Michael A. Carpenter
/s/ George S. Michinard, Jr.
By ..................................
(George S. Michinard, Jr.,
Attorney-in-Fact)
--------
* Pursuant to Powers of Attorney filed as exhibits to Registration Statement
Nos. 333-62533 and 333-66875.
II-4
