<PAGE>
Registration No. 33-9698
S E C U R I T I E S A N D E X C H A N G E C O M M I S
S I O
N
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 9
to
F O R M 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,
SERIES 256
B.
Name of Depositor:
SMITH BARNEY INC.
<TABLE>
<S> <C>
C. Complete address of depositor's principal executive
office:
SMITH BARNEY
INC.
388 Greenwich Street
New York, New York 10013
D. Name and complete address of agent for service:
LAURIE A. HESSLEIN
Smith Barney
Inc.
388 Greenwich Street
New York, New York 10013
</TABLE>
It is proposed that this filing will become effective March 1,
1996
pursuant to paragraph (b) of Rule 485.
<PAGE>
TAX EXEMPT SECURITIES TRUST
CROSS-REFERENCE SHEET
Pursuant to Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction
as to the Prospectus in Form S-6)
<TABLE>
Form N-89B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
<C> <S> <C>
1. . . . . . . . . (a) Name of trust Prospectus front cover
(b) Title of securities issued . .
2.Name and address of each depositor Sponsors: Prospectus back
cover
3. . . . Name and address of trustee Trustee
4.Name and address of each principal underwriterSponsors:
Prospectus back cover
5. . .State of organization of trust Tax Exempt Securities
Trust
6.Execution and termination of trust agreementTax Exempt
Securities Trust - The
Trust:
Amendment and Termination
of the Trust Agreement 7. .
. . . . . . . . Changes of name *
8. . . . . . . . . . . . Fiscal year *
9. . . . . . . . . . . . .Litigation *
II. General Description of the Trust and
Securities of the Trust
10.(a) Registered or bearer securities Rights of Unit Holders
(b) Cumulative or distributive securities
(c) Redemption . . . . . . . . . .
(d) Conversion, transfer, etc. . .
(e) Periodic payment plan. . . . . *
(f) Voting rights. . . . . . . . .
(g) Notice to certificate holders Rights of Unit Holders -
Reports and Records:
Sponsors -
Responsibility: Trustee -
Resignation: Amendment
and Termination of the
Trust Agreement -
Amendment
(h) Consents required. . . . . . . Sponsors - Responsibility:
Amendment and Termination
of the Trust Agreement (i) Other
provisions . . . . . . . Tax Exempt Securities Trust - Tax Status
11.Type of securities comprising units Prospectus front cover:
Tax Exempt Securities
Trust - Portfolio
12.Certain information regarding periodic
payment certificates. . . . . . . *
13.. .(a) Load, fees, expenses, etc. Prospectus front cover:
Summary of Essential
Information; Public
Offering - Offering
Price; Public Offering -
Sponsors' and
Underwriters' Profits:
Tax Exempt Securities
Trust - Expenses and
Charges
<PAGE>
Form N-89B-2 Form S-6
Item Number Heading in Prospectus
II. General Description of the Trust and
Securities of the Trust
<C> <S> <C>
(b) Certain information regarding periodic
payment certificates . . . . *
(c) Certain percentages. . . . . . Public Offering - Offering
Price
(d) Certain other fees, etc, payable by holders
Rights of Unit Holders - Certificates
(e) Certain profits receivable by depositors,
principal underwriters, trustee or
affiliated persons . . . . . . Public Offering - Sponsors'
and Underwriters' Profits:
Rights of Unit Holders -
Redemption of Units -
Purchase by the Sponsors of
Units Tendered for
Redemption
(f) Ratio of annual charges to income*
14.. .Issuance of trust's securities Tax Exempt Securities
Trust - The Trust: Rights
of Unit Holders -
Certificates
15.Receipt and handling of payments from purchasers*
16.Acquisition and disposition of underlying
securities . . . . . . . . . . . . Tax Exempt Securities Trust
- Portfolio: Sponsors -
Responsibility
17.. . . . .Withdrawal or redemption Rights of Unit Holders -
Redemption of Units
18.(a) Receipt, custody and disposition of incomeRights of Units
Holders - Distribution of
Interest and Principal:
Rights of Unit Holders -
Reports and Records
(b) Reinvestment of distributions *
(c) Reserves or special funds. . . Rights of Unit Holders -
Distribution of Interest
and Principal: Tax Exempt
Securities Trust - Expenses
and Charges - Other Charges (d) Schedule of
distributions. . . *
19.. . Records, accounts and reports Rights of Unit Holders -
Reports and Records:
Rights of Unit Holders -
Distribution of Interest
and Principal
20.Certain miscellaneous provisions of trust agreementAmendment
and Termination of the Trust
(a) Amendment. . . . . . . . . . . Agreement: Trustee -
Resignation: Trustee -
(b) Termination . . . . . . . . . Resignation: Trustee -
Limitations on Liability:
(c) and (d) Trustee, removal and successorSponsors -
Responsibility: Sponsors - Resignation
(e) and (f) Depositors, removal and successor
21.. . . . Loans to security holders *
22.. . . . .Limitations on liability Sponsors - Limitations on
Liability: Trustee -
Limitations on Liability:
Tax Exempt Securities
Trust - Portfolio
23.. . . . . . .Bonding arrangements *
24.Other material provisions of trust agreement*
______
* Inapplicable, answer negative or not required.
<PAGE>
<PAGE> Form N-89B-2 Form S-6
Item Number Heading in Prospectus
III. Organization, Personnel and
Affiliated Persons of Depositor
<C> <S> <C>
25.. . . .Organization of depositors Sponsors
26.. . . Fees received by depositors *
27.. . . . . .Business of depositors Sponsors
28.Certain information as to officials and
affiliated persons of depositors [Contents of Registration
Statement]
29.. Voting securities of depositors *
30.. .Persons controlling depositors *
31.Payments by depositor for certain services
rendered to trust . . . . . . . . *
32.Payments by depositors for certain other services
rendered to trust . . . . . . . . *
33.Remuneration of employees of depositors for
certain services rendered to trust *
34.Remuneration of other persons for certain services
rendered to trust . . . . . . . . *
IV. General Description of the Trust and
Securities of the Trust
35.Distribution of trust's securities by statesPublic Offering -
Distribution of Units
36.Suspension of sales of trust's securities*
37.Revocation of authority to distribute*
38.. . . .(a) Method of distribution Public Offering -
Distribution of Units
(b) Underwriting agreements. . . .
(c) Selling agreements . . . . . .
39.(a) Organization of principal underwritersSponsors
(b) N.A.S.D. membership of principal underwriters
40.Certain fees received by principal underwriters*
41.(a) Business of principal underwritersSponsors
(b) Branch offices of principal underwriters*
(c) Salesmen of principal underwriters*
42.Ownership of trust's securities by certain persons*
43.Certain brokerage commissions received by principal
underwriters. . . . . . . . . . . *
44.. . . . . (a) Method of valuation Prospectus front cover:
Public Offering -
Offering Price: Public
Offering - Distribution
of Units
(b) Schedule as to offering price *
(c) Variation in offering price to certain personsPublic
Offering - Distribution of Units
45.. Suspension of redemption rights *
46.. . . . .(a) Redemption Valuation Rights of Unit Holders -
Redemption of Units -
Computation of Redemption
Price per Unit
(b) Schedule as to redemption price *
47.Maintenance of position in underlying securities
Public Offering - Market for Units: Rights of Unit Holders -
Redemption of Units - Purchase by the Sponsors of Units
tendered for Redemption; Rights of Unit Holders - Redemption
of Units - Computation of Redemption Price per Unit
______
* Inapplicable, answer negative or not required.<PAGE>
<PAGE> Form N-89B-2 Form S-6
Item Number Heading in Prospectus
V. Information Concerning the Trustee
or Custodian
<C> <S> <C>
48.Organization and regulation of trusteeTrustee
49.. . .Fees and expenses of trustee Tax Exempt Securities
Trust - Expenses and
Charges
50.. . . . . . . . . .Trustee's lien Tax Exempt Securities
Trust - Expenses and
Charges - Other Charges
VI. Information Concerning Insurance of
Holders of Securities
51.Insurance of holders of trust's securities*
VI. Policy of Registrant
52. (a) Provisions of trust agreement with respect to
selection or elimination of underlying securitiesProspectus
front cover: Sponsors-Responsibility
(b)Transactions involving elimination of
underlying securities . . . . . *
(c)Policy regarding substitution or elimination
of underlying securities. . . . Sponsors - Responsibility
(d)Fundamental policy not otherwise covered*
53. Tax status of trust . . . . . . Prospectus front cover: Tax
Exempt Securities Trust -
Tax Status
VIII. Financial and Statistical Information
54. Trust's securities during last ten years*
55. . . . . . . . . . . . . . . . . *
56. Certain information regarding periodic payment
securities . . . . . . . . . . . . *
57. . . . . . . . . . . . . . . . . *
58. . . . . . . . . . . . . . . . . *
59. Financial statements (Instruction 1(c) to form S-6)
Statement of Financial Condition of The Tax Exempt Securities
Trust
______
* Inapplicable, answer negative or not required.
<PAGE>
</TABLE>
National Trust 128
[S][C]
In the opinion of counsel, under existing law interest income to the
Trust and, with certain exceptions, to Unit holders is exempt from all
Federal income tax, but may be subject to state and local taxes.
Capital gains, if any, are subject to tax. Investors should retain both
parts of this Prospectus for future reference.
THE INITIAL PUBLIC OFFERING OF UNITS IN THE TRUST
HAS BEEN COMPLETED. THE UNITS OFFERED HEREBY ARE
ISSUED AND OUTSTANDING UNITS WHICH HAVE BEEN
ACQUIRED BY THE SPONSOR EITHER BY PURCHASE FROM
THE TRUSTEE OF UNITS TENDERED FOR REDEMPTION OR
IN THE SECONDARY MARKET. SEE PART B, "RIGHTS OF
UNIT HOLDERS--REDEMPTION OF UNITS--PURCHASE BY
THE SPONSOR OF UNITS TENDERED FOR REDEMPTION"
AND "MARKET FOR UNITS". THE PRICE AT WHICH THE
UNITS OFFERED HEREBY WERE ACQUIRED WAS NOT LESS
THAN THE REDEMPTION PRICE DETERMINED AS PROVIDED
HEREIN. SEE PART B, "RIGHTS OF UNIT HOLDERS--
REDEMPTION OF UNITS--COMPUTATION OF REDEMPTION
PRICE PER UNIT".
THE TAX EXEMPT SECURITIES TRUST, SERIES 256 is a unit
investment trust formed for the purpose of obtaining for its Unit
holders tax-exempt interest income through investment in a fixed
portfolio consisting primarily of long term municipal bonds rated at
the time of deposit A or better by Standard & Poor's Corporation or
Moody's Investors Service, with certain ratings being provisional or
conditional. (See "Portfolio of Securities".) The bonds are issued on
behalf of states, counties, territories, possessions and municipalities of
the United States and authorities or political subdivisions thereof. The
interest on such bonds is exempt from all Federal income tax (except
in certain instances depending upon the Unit holder) under existing law
in the opinion of recognized bond counsel to the issuing governmental
authorities. See "Taxes" for further information regarding the Federal
income tax treatment of interest on municipal bonds.
THE OBJECTIVES of the Trust are tax-exempt income and
conservation of capital through an investment in a diversified portfolio
consisting primarily of municipal bonds. There is, of course, no
guarantee that the Trust's objectives will be achieved since the
payment of interest and preservation of principal are dependent upon
the continued ability of the issuers of the bonds to meet such
obligations.
THE PUBLIC OFFERING PRICE of the Units is equal to the
aggregate bid price of the underlying Securities in the Trust's portfolio
divided by the number of Units outstanding, plus a sales charge equal
to 5% of the Public Offering Price (5.263% of the aggregate bid price
of the Securities per Unit). A proportional share of accrued and
undistributed interest on the Securities at the date of delivery of the
Units to the purchaser is also added to the Public Offering Price.
THE SPONSOR, although not obligated to do so, intends to maintain
a market for the Units at prices based upon the aggregate bid price of
the underlying Securities, as more fully described in Part B, "Market
for Units". If such a market is not maintained, a Unit holder may be
able to dispose of his Units only through redemption at prices based
upon the aggregate bid price of the underlying Securities.
MONTHLY DISTRIBUTIONS of principal and interest received by
the Trust will be made on or shortly after the fifteenth day of each
month to holders of record on the first day of that month. For further
information regarding the distributions by the Trust, see the "Summary
of Essential Information".
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus Part A dated March 1, 1996
Note: Part A of this Prospectus may not be distributed unless
accompanied by Part B.
<PAGE>
<TABLE>
TAX EXEMPT SECURITIES TRUST, SERIES 256
NATIONAL TRUST 128
SUMMARY OF ESSENTIAL INFORMATION AS OF NOVEMBER
30, 1995+
Sponsor:SMITH BARNEY INC.
Trustee:THE CHASE MANHATTAN BANK, N.A.
Evaluator:KENNY S&P EVALUATION SERVICES
<S><C>
Principal Amount of Securities in Trust$6,805,000
Number of Units 13,188
Fractional Undivided Interest in Trust per Unit 1/13,188
Principal Amount of Securities in Trust per Unit$515.99
Public Offering Price per Unit #*$ 547.07
Sales Charge (5% of Public Offering Price)# 27.35
Approximate Redemption and Sponsor's Repurchase Price
per Unit
(per Unit Bid Price of Securities)#**$519.72
Calculation of Estimated Net Annual Income per Unit:
Estimated Annual Income per Unit$33.45
Less Estimated Annual Expenses per Unit .88
Estimated Net Annual Income per Unit$32.57
Monthly Income Distribution per Unit$2.71
Daily Rate (360-day basis) of Income Accrual per
Unit$.0904
Estimated Current Return Based on Public Offering Price#
5.95%
Estimated Long-Term Return# 4.70%
<FN>
#Subject to changes in the prices of the underlying securities. The
aggregate bid price of the securities is determined on each business
day as of the Evaluation Time.
*Plus $9.32 per Unit representing accrued interest and the net of
cash on hand, accrued expenses and amounts distributable to Unit
holders through the expected date of settlement (three business days
after November 30, 1995). (See "Public Offering--Offering Price".)
**Plus $11.66 per Unit representing accrued interest and the net of
cash on hand, accrued expenses and amounts distributable to Unit
holders of record as of November 30, 1995 on a pro rata basis. (See
"Redemption of Units--Computation of Redemption Price per Unit".)
</TABLE>
Record Dates: The first day of each month
Distribution Dates: The fifteenth day of each month
Evaluation Time: Close of trading on the New
York Stock Exchange (currently
4:00 P.M. New York time)
Date of Deposit and
Trust Agreement: November 12, 1986
Mandatory Termination Date: January 1, 2035
Minimum Value of Trust: Trust may be terminated if the
value of the Trust is less than
$7,500,000 and must be
terminated if the value of the
Trust is less than $3,750,000
Trustee's Annual Fee: $1.05 per $1,000 principal
amount of bonds ($7,145 per
year on the basis of bonds in
the principal amount of
$6,805,000) plus expenses.
Evaluator's Fee: $.30 per bond per evaluation Number of
issues: 14 Number of States: 12
As of November 30, 1995, 8 (68%) of the Bonds were rated by
Standard & Poor's Corporation (21% being rated AAA, 7% being
rated AA, 32% being rated A and 8% being rated BBB), 3 (23%)
were rated by Moody's Investors Service (12% being rated Aaa, 4%
being rated Aa and 7% being rated A) and 3 (9%) were not rated by
either service. Ratings assigned by the bond rating services are
subject to change from time to time.<PAGE>
<PAGE>
Additional Considerations - Investment in the Trust should be made with
an understanding that the value of the underlying Portfolio may decline
with increases in interest rates. Approximately 31% of the Bonds in the
Trust consist of hospital revenue bonds (including obligations of health
care facilities). Approximately 1% of the Bonds in the Trust consist of
obligations of municipal housing authorities. Approximately 30% of the
Bonds in the Trust consist of bonds in the power facilities category. (See
Part B, "Tax Exempt Securities Trust--Portfolio" for a brief summary of
additional considerations relating to certain of these issues.)
+ The percentages referred to in this summary are each computed on
the basis of the aggregate bid price of the Bonds as of November 30,
1995.
<TABLE>
FINANCIAL AND STATISTICAL INFORMATION
Selected data for each Unit outstanding
IncomePrincipal
UnitsNet AssetDistributionsDistributions
Period EndedOutstandingValue Per UnitPer UnitPer Unit
<S><C><C><C><C>
October 31, 199314,471$751.63$59.84$139.49
October 31, 199414,150672.2349.4219.27
October 31, 199513,321579.6147.02103.56
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Unit Holders, Sponsor and Trustee of
Tax Exempt Securities Trust, Series 256 National Trust 128:
We have audited the accompanying balance sheet of Tax Exempt
Securities Trust, Series 256 National Trust 128, including the portfolio
of securities, as of October 31, 1995, and the related statements of
operations and changes in net assets for each of the years in the three-
year period ended October 31, 1995. These financial statements are the
responsibility of the Trustee (see Note 6). Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned
as of October 31, 1995 by correspondence with the Trustee. An audit
also includes assessing the accounting principles used and significant
estimates made by the Trustee, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tax Exempt Securities
Trust, Series 256 National Trust 128 as of October 31, 1995, and the
results of its operations and changes in its net assets for each of the years
in the three-year period ended October 31, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
February 2, 1996 <PAGE>
<PAGE>
<TABLE>TAX EXEMPT SECURITIES TRUST, SERIES
256
NATIONAL TRUST 128
BALANCE SHEET
October 31, 1995
ASSETS
<S><C>
Investments in tax exempt bonds, at market value
(Cost $6,530,515) (Note 3 to Portfolio of Securities)$ 7,012,843
Accrued interest 136,762
Cash 572,405
Total Assets$7,722,010
LIABILITIES AND NET ASSETS
Accrued expenses$ 908
Net Assets (13,321 units of fractional undivided interest
outstanding):
Original cost to investors (Note 1)$15,606,937
Less initial underwriting commission (sales charge)
(Note 1) 663,295
14,943,642
Cost of securities sold or redeemed since date
of deposit (November 12, 1986) (8,413,127)
Net unrealized market appreciation 482,328
7,012,843
Undistributed net investment income 165,674
Undistributed proceeds from securities sold or
redeemed 542,585
Net Assets 7,721,102
Total Liabilities and Net Assets$7,722,010
Net asset value per unit$579.61
STATEMENTS OF OPERATIONS
For the years ended October 31, 1995, 1994 and 1993
1995 1994 1993
<S><C><C><C>
Investment Income-interest (Note 2)$ 638,948$ 723,984$
855,789
Less expenses:
Trustee's fees and expenses 12,70013,83315,238
Evaluator's fees 1,774 1,881 2,568
Total expenses 14,474 15,714 17,806
Net investment income 624,474 708,270 837,983
Realized and unrealized gain (loss) on investments:
Net realized gain (loss) on securities transactions
(Note 5) (288,147)62,751(232,913)
Net increase (decrease) in unrealized market
appreciation 469,434 (922,299) 775,168
Net gain (loss) on investments 181,287 (859,548) 542,255
Net increase (decrease) in net assets resulting from
operations$805,761$(151,278)$1,380,238
The accompanying Notes to Financial Statements are an integral part of
these statements.<PAGE>
<PAGE>
TAX EXEMPT SECURITIES TRUST, SERIES 256
NATIONAL TRUST 128
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended October 31, 1995, 1994 and 1993
1995 1994 1993
Operations:
Net investment income$624,474$708,270$837,983
Net realized gain (loss) on securities transactions
(Note 5) (288,147)62,751(232,913)
Net increase (decrease) in unrealized market
appreciation 469,434 (922,299) 775,168
Net increase (decrease) in net assets resulting from
operations 805,761 (151,278) 1,380,238
Distributions to Unit Holders:
Net investment income (Note 4) (652,729)(706,773)(869,391)
Proceeds from securities sold or redeemed (1,424,338) (275,060)
(2,023,119)
Total Distributions (2,077,067) (981,833) (2,892,510)
Unit Redemptions by Unit Holders (Note 3):
Accrued interest at date of redemption (9,809)(3,952)(3,862)
Value of Units at date of redemption (509,848) (227,735)
(206,311)
Total Redemptions (519,657) (231,687) (210,173)
Decrease in net assets (1,790,963)(1,364,798)(1,722,445)
Net Assets:
Beginning of year 9,512,065 10,876,863 12,599,308
End of year (including undistributed net
investment income of $165,674, $203,738
and $206,192, respectively)$7,721,102$9,512,065$10,876,863
</TABLE>
NOTES TO FINANCIAL STATEMENTS
(1) The original cost to the investors represents the aggregate initial
public offering price as of the date of deposit (November 12, 1986),
exclusive of accrued interest, computed on the basis of the aggregate
offering price of the securities. The initial underwriting commission
(sales charge) was 4.70% of the aggregate public offering price
(4.932% of the aggregate offering price of the securities).
(2) Interest income represents interest earned on the Trust's portfolio
and has been recorded on the accrual basis.
(3) 1,397 Units were redeemed by the Trustee during the three years
ended October 31, 1995 (829 Units being redeemed in 1995, 321
Units being redeemed in 1994 and 247 Units being redeemed in
1993).
(4) Interest received by the Trust is distributed to Unit holders on the
fifteenth day of each month, after deducting applicable expenses.
(5) The gain (loss) from the sale or redemption of securities is
computed on the basis of the average cost of the issue sold or
redeemed.
(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 control 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 of expenses 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".
Under the Securities Act of 1933, as amended (the "Act"), the
Sponsor is deemed to be issuer of each Trust's Units. As such, the
Sponsor has the responsibility of issuer under the Act with respect
to financial statements of each Trust included in the Registration
Statement.
<PAGE>
<TABLE>
TAX EXEMPT SECURITIES TRUST, SERIES 256
NATIONAL TRUST 128 - PORTFOLIO OF SECURITIES - October
31, 1995
RatingsRedemptionPrincipalMarket
Security Description (1) Provisions (2) Amount Value (3)
<S><C><C><C><C>
Illinois Health Facilities Authority Revenue
Refunding Bonds, Lutheran Hospital ofNR --$190,000$197,024
Moline, 6.60% due 7/1/2007S.F. Currently @ 100
City of Indianapolis, Indiana, Resource
Recovery Revenue Bonds, Ogden Martin
Systems of Indianapolis, Inc. Project,A+12/1/96 @ 103670,000712,646
7.90% due 12/1/2008S.F. 12/1/05 @ 100
Davenport, Iowa, Hospital Revenue
Bonds, St. Luke's HospitalNR --130,000140,041
Project, 7.20% due 7/1/2009S.F. 7/1/99 @ 100
Grand Island, Nebraska, ElectricA+11/30/95 @ 101765,000772,956
Revenue Bonds, 6.10% due 9/1/2012S.F. 9/1/98 @ 100
North Carolina Eastern Municipal
Power Agency, Power System RevenueAaa* --1,000,000779,060
Refunding Bonds, 4.00% due 1/1/2018S.F. 1/1/17 @ 100
County of Belmont, Ohio, Health System
Revenue and Refunding Bonds, East Ohio
Regional Hospital Issue, NR1/1/96 @ 102250,000255,468
9.50% due 1/1/2013S.F. 1/1/01 @ 100
Muskogee Medical Center Authority,
Oklahoma, Muskogee General Hospital A11/30/95 @
101100,000100,129
Gross Revenue Bonds, 6.50% due 3/1/2004S.F. Currently @ 100
Piedmont Municipal Power Agency,
South Carolina, Electric RevenueA*1/1/96 @ 100500,000420,075
Refunding Bonds, 5.00% due 1/1/2025
South Dakota Housing Development
Authority, Multi-Family HousingA+11/30/95 @ 10290,00092,175
Revenue Bonds, 8.375% due 4/1/2022S.F. 4/1/00 @ 100
The Metropolitan Nashville Airport
Authority, Tennessee, Special Facility
Revenue Bonds, American Airlines, Baa3*11/30/95 @
102225,000230,609
Inc. Project, 9.875% due 10/1/2005
Harris County, Texas, Hospital
District, Refunding Revenue AAA4/1/96 @ 1021,310,0001,361,038
Bonds, 8.50% due 4/1/2015 (p)
City of Austin, Texas, Combined
Utility Systems Revenue Refunding A5/15/96 @ 100500,000459,805
Bonds, 5.00% due 11/15/2013S.F. 5/15/13 @ 100
Intermountain Power Agency, Utah,
Power Supply Revenue Refunding Aa*7/1/96 @ 100300,000263,067
Bonds, 5.00% due 7/1/2021S.F. 7/1/18 @ 100
A-6
<PAGE>
TAX EXEMPT SECURITIES TRUST, SERIES 256
NATIONAL TRUST 128 - PORTFOLIO OF SECURITIES - October
31, 1995
(Continued)
RatingsRedemptionPrincipalMarket
Security Description (1) Provisions (2) Amount Value (3)
Intermountain Power Agency, Utah,
Special Obligation Bonds,AA7/1/96 @ 100$500,000$443,535
5.00% due 7/1/2018
West Virginia Water Development
Authority, Water Development RevenueBBB+11/1/96 @ 102
500,000 530,215
Bonds, 8.125% due 11/1/2016 (p)
County of Cuyahoga, Ohio, Hospital
Improvement Refunding Revenue Bonds,
Brentwood Hospital Project,Baa1*11/1/95 @ 102 250,000
255,000
9.625% due 11/1/2014 (p)S.F. 11/1/98 @ 100
$7,280,000$7,012,843
The accompanying Notes are an integral part of this Portfolio.
A-7<PAGE>
<PAGE>
TAX EXEMPT SECURITIES TRUST, SERIES 256
NATIONAL TRUST 128 - PORTFOLIO OF SECURITIES - October
31, 1995
(Continued)
At October 31, 1995, the net unrealized market appreciation of all tax
exempt bonds was comprised of the following:
<S><C>
Gross unrealized market appreciation$643,968
Gross unrealized market depreciation (161,640)
Net unrealized market appreciation$482,328
</TABLE>
NOTES TO PORTFOLIO OF SECURITIES:
(1) All Ratings are by Standard & Poor's Corporation, except those
identified by an asterisk (*) which are by Moody's Investors
Service. The meaning of the applicable rating symbols is set forth
in Part B, "Ratings".
(2) There is shown under this heading the year in which each issue of
bonds initially or currently 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.
"S.F." 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 the Trust. Certain bonds in the portfolios, including
bonds not listed as being subject to redemption provisions, may be
redeemed in whole or in part other than by operation of the stated
redemption or sinking fund provisions 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 municipal housing authorities under
"Tax Exempt Securities Trust--Portfolio" in Part B.
(3) The market value of securities as of October 31, 1995 was
determined by the Evaluator on the basis of bid prices for the
securities at such date.
(p) It is anticipated that these bonds will be redeemed prior to
their scheduled maturity pursuant to a pre-refunding, as
reflected under the column "Redemption Provisions".
A-8
<PAGE>
PROSPECTUS-PART B
Note: Part B of this Prospectus may not be distributed
unless accompanied by Part A
TAX EXEMPT SECURITIES TRUST
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 State Trust
or Umbrella Series is one of a series of similar but separate unit investment
trusts created under the laws of the State of New York by a Trust Indenture
and Agreement and related Reference Trust Agreement (collectively, the "Trust
Agreement"), dated the Date of Deposit, of Smith Barney Inc. as sponsor (the
"Sponsor"), The Chase Manhattan Bank (National Association), as trustee (the
"Trustee"), and Kenny S&P Evaluation Services, Inc., a division of J.J. Kenny
Co., Inc., as evaluator (the "Evaluator"). On the Date of Deposit, the
Sponsor deposited with the Trustee interest-bearing obligations (the "Bonds"),
including contracts for the purchase of certain such obligations of a State
for which such Trust is named herein (a "State Trust") and all other Trusts
(hereinafter referred to as the "Umbrella Series") (such Bonds and Deposited
Units being referred to herein collectively as the "Securities"). The Trustee
thereafter delivered to the Sponsor registered certificates of beneficial
interest (the "Certificates") representing the units (the "Units") comprising
the entire ownership of each State Trust or Umbrella Series. The initial
public offering of Units in each State Trust and Umbrella Series has been
completed. The Units offered hereby are issued and outstanding Units which
have been acquired by the Sponsor either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. References to multiple
Trusts in Part B herein should be read as references to a single Trust if Part
A indicates the creation of only one Trust. See "Rights of Unit Holders --
Redemption of Units -- Purchase by the Sponsor of Units Tendered for
Redemption" and "Public Offering -- Market for Units."
Objectives
A tax-exempt unit investment trust provides many of the same benefits as
individual bond purchases, while the Unit holder avoids the complexity of
analyzing selecting and monitoring a multibond portfolio. The objectives of
each State Trust and Umbrella Series are tax-exempt income and conservation of
capital through an investment in a diversified portfolio of municipal bonds.
There is, of course, no guarantee that a State Trust's or Umbrella Series'
objectives will be achieved since the payment of interest and the preservation
of principal are dependent upon the continued ability of the issuers of the
Bonds to meet such obligations.
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 State Trust and
Umbrella Series: (1) all the Bonds deposited in a State Trust or an Umbrella
Series are obligations of the State for which such State Trust is named or of
the counties or municipalities of such State, territories or possessions of
the United States, and authorities or political subdivisions thereof, so that
the interest on them will, in the opinion of recognized bond counsel to the
issuing governmental authorities given on the date of the original delivery of
the Bonds, be exempt from Federal income tax under existing law and from state
income taxes in the state for which such Trust is named in each case to the
extent indicated in "Tax Exempt Securities Trust - Taxes", (2) the Bonds are
diversified as to purpose of issue and location of issuer, except in the case
of a State Trust is named to the extent described in Part C, (3) in the
opinion of the Sponsor, the Bonds are fairly valued relative to other bonds of
comparable quality and maturity and (4) the Bonds were chosen in part on the
basis of their respective maturity dates and offer a degree of call
protection. The rating of each issue is also set forth in Part A, "Portfolio
of Securities." For a description of the meaning of the applicable rating
symbols as published by Standard & Poor's, Moody's, Fitch Investors Service,
Inc. ("Fitch") and Duff & Phelps Credit Rating Co. ("Duff & Phelps"), see
"Bond Ratings." It should be emphasized, however, that the ratings of
Standard & Poor's, Moody's, Fitch and Duff & Phelps represent their opinions
as to the quality of the Bonds which they undertake to rate, and that these
ratings are general and are not absolute standards of quality.
References to State Trusts, in the following discussion, also relate to
other Trusts comprising Umbrella Series.
The Bonds in the Portfolio of a State Trust were chosen in part on the
basis of their respective maturity dates. The Bonds in each Trust will have a
dollar-weighted portfolio maturity as designated in "Part A-Portfolio Summary
as of Date of Deposit." The actual maturity date of each of the Bonds
contained in a State Trust, which date may be earlier or later than the
dollar-weighted average portfolio maturity of the Trust is indicated in Part
A, "Portfolio of Securities". A sale or other disposition of a Bond by the
Trust prior to the maturity of such Bond may be at a price which results in a
loss to the State Trust or Umbrella Series. The inability of an issuer to pay
the principal amount due upon the maturity of a Bond would result in a loss to
the State Trust or Umbrella Series.
Additional Considerations Regarding the Trusts
Most of the Bonds in the Portfolio of a State Trust and Umbrella Series
are subject to redemption prior to their stated maturity date pursuant to
sinking fund or call provisions. (See Part A-"Portfolio Summary as of Date of
Deposit" for information relating to the particular State Trust and Umbrella
Series described therein.) In general, 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, as it might be in periods of declining
interest rates, than when such price valuation is less than the bond's call or
redemption price. To the extent that a Bond was deposited in a State Trust
and Umbrella Series at a price higher than the price at which it is
redeemable, redemption will result in a loss of capital when compared with the
original public offering price of the Units. Conversely, to the extent that a
Bond was acquired at a price lower than the redemption price, redemption will
result in an increase in capital when compared with the original public
offering price of the Units. Monthly distributions will generally be reduced
by the amount of the income which would otherwise have been paid with respect
to redeemed bonds. The Estimated Current Return and Estimated Long-Term
Return of the Units may be affected by such redemptions. Each Portfolio of
Securities in Part A contains a listing of the sinking fund and call
provisions, if any, with respect to each of the Bonds in a State Trust and
Umbrella Series. Because certain of the Bonds may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that a State
Trust and Umbrella Series will retain for any length of time its present size
and composition. Neither the Sponsor nor the Trustee shall be liable in any
way for any default, failure or defect in any Bond.
The Portfolio of the State Trust and Umbrella Series 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, even
though at the time of the issuance of such Bonds the interest coupons thereon
represented then prevailing interest rates on comparably rated Bonds then
newly issued. Bonds selling at market discounts tend to increase in market
value as they approach maturity when the principal amount is payable. A
market discount tax-exempt Bond held to maturity will have a larger portion of
its total return in the form of taxable ordinary income and less in the form
of tax-exempt income than a comparable Bond bearing interest at current market
rates. Under the provisions of the Internal Revenue Code in effect on the
date of this Prospectus any ordinary income attributable to market discount
will be taxable but will not be realized until maturity, redemption or sale of
the Bonds or Units.
As set forth under "Portfolio Summary as of Date of Deposit", the State
Trust and Umbrella Series may contain or be concentrated in one or more of the
classifications of Bonds referred to below. A State Trust and Umbrella Series
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.
(See Part A-"Portfolio Summary as of Date of Deposit" for information relating
to the particular State Trust and Umbrella Series described therein.) An
investment in Units of the State Trust and Umbrella Series should be made with
an understanding of the risks that these investments may entail, certain of
which are described below.
General Obligation Bonds. Certain of the Bonds in the Portfolio may be
general obligations of a governmental entity that are secured by the taxing
power of the entity. General obligation bonds are backed by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. However, the taxing power of any governmental entity may be
limited by provisions of state constitutions or laws and an entity's credit
will depend on many factors, including an erosion of the tax base due to
population declines, natural disasters, declines in the state's industrial
base or inability to attract new industries, economic limits on the ability to
tax without eroding the tax base and the extent to which the entity relies on
Federal or state aid, access to capital markets or other factors beyond the
entity's control.
As a result of the recent recession's adverse impact upon both their
revenues and expenditures, as well as other factors, many state and local
governments are confronting deficits and potential deficits which are the most
severe in recent years. Many issuers are facing highly difficult choices
about significant tax increases and/or spending reductions in order to restore
budgetary balance. Failure to implement these actions on a timely basis could
force the issuers to depend upon market access to finance deficits or cash
flow needs.
In addition, certain of the Bonds in the State Trust and Umbrella Series
may be obligations of issuers (including California issuers) who rely in whole
or in part on ad valorem real property taxes as a source of revenue. Certain
proposals, in the form of state legislative proposals or voter initiatives, to
limit ad valorem real property taxes have been introduced in various states,
and an amendment to the constitution of the State of California, providing for
strict limitations on ad valorem real property taxes, has had a significant
impact on the taxing powers of local governments and on the financial
conditions of school districts and local governments in California. It is not
possible at this time to predict the final impact of such measures, or of
similar future legislative or constitutional measures, on school districts and
local governments or on their abilities to make future payments on their
outstanding debt obligations.
Industrial Development Revenue Bonds ("IDRs"). IDRs, including
pollution control revenue bonds, are tax-exempt securities issued by states,
municipalities, public authorities or similar entities ("issuers") to finance
the cost of acquiring, constructing or improving various projects, including
pollution control facilities and certain industrial development facilities.
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 under arrangements between the issuer and the corporate
operator of a project. These arrangements may be in the form of a lease,
installment sale agreement, conditional sale agreement or loan agreement, but
in each case the payments to the issuer are designed to be sufficient to meet
the payments of amounts due on the IDRs.
IDRs are generally issued under bond resolutions, agreements or trust
indentures pursuant to which the revenues and receipts payable under the
issuer's arrangements with the corporate operator of a particular project have
been assigned and pledged to the holders of the IDRs or a trustee for the
benefit of the holders of the IDRs. In certain cases, a mortgage on the
underlying project has been assigned to the holders of the IDRs or a trustee
as additional security for the IDRs. In addition, IDRs are frequently
directly guaranteed by the corporate operator of the project or by another
affiliated company. Regardless of the structure, payment of IDRs is solely
dependent upon the creditworthiness of the corporate operator of the project
or corporate guarantor. 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. These include
cyclicality of revenues and earnings, regulatory and environmental
restrictions, litigation resulting from accidents or environmentally-caused
illnesses, extensive competition (including that of low-cost foreign
companies), unfunded pension fund liabilities or off-balance sheet items, and
financial deterioration resulting from leveraged buy-outs or takeovers.
However, certain of the IDRs in the Portfolio may be additionally insured or
secured by letters of credit issued by banks or otherwise guaranteed or
secured to cover amounts due on the IDRs in the event of default in payment by
an issuer.
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, including the
level of payments received from private third-party payors and government
programs and the cost of providing health care services.
A significant portion of the revenues of hospitals and other health care
facilities is derived from private third-party payors and government programs,
including the Medicare and Medicaid programs. Both private third-party payors
and government programs have undertaken cost containment measures designed to
limit payments made to health care facilities. Furthermore, government
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions, all
of which may materially decrease the rate of program payments for health care
facilities. There can be no assurance that payments under governmental
programs will remain at levels comparable to present levels or will, in the
future, be sufficient to cover the costs allocable to patients participating
in such programs. In addition, there can be no assurance that a particular
hospital or other health care facility will continue to meet the requirements
for participation in such programs.
The costs of providing health care services are subject to increase as a
result of, among other factors, changes in medical technology and increased
labor costs. In addition, health care facility construction and operation is
subject to federal, state and local regulation relating to the adequacy of
medical care, equipment, personnel, operating policies and procedures,
rate-setting, and compliance with building codes and environmental laws.
Facilities are subject to periodic inspection by governmental and other
authorities to assure continued compliance with the various standards
necessary for licensing and accreditation. These regulatory requirements are
subject to change and, to comply, it 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 subject to claims and
legal actions by patients and others in the ordinary course of business.
Although these claims are generally covered by insurance, 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. In
addition, a substantial increase in the cost of insurance could adversely
affect the results of operations of a hospital or other health care facility.
The Clinton Administration may impose regulations which could limit price
increases for hospitals or the level of reimbursements for third-party payors
or other measures to reduce health care costs and make health care available
to more individuals, which would reduce profits for hospitals. Some states,
such as New Jersey, have significantly changed their reimbursement systems.
If a hospital cannot adjust to the new system by reducing expenses or raising
rates, financial difficulties may arise. Also, Blue Cross has denied
reimbursement for some hospitals for services other than emergency room
services. The lost volume would reduce revenues unless replacement patients
were found.
Certain hospital bonds may provide for redemption at par at any time
upon the sale by the issuer of the hospital facilities to a non-affiliated
entity, if the hospital becomes subject to ad valorem taxation, or in various
other circumstances. For example, certain hospitals may have the right to
call bonds at par if the hospital may be legally required because of the bonds
to perform procedures against specified religious principles or to disclose
information that is considered confidential or privileged. Certain
FHA-insured bonds may provide that all or a portion of these bonds, otherwise
callable at a premium, can be called at par in certain circumstances. If a
hospital defaults upon a bond obligation, the realization of Medicare and
Medicaid receivables may be uncertain and, if the bond obligation is secured
by the hospital facilities, legal restrictions on the ability to foreclose
upon the facilities and the limited alternative uses to which a hospital can
be put may severely reduce its collateral value.
The Internal Revenue Service has engaged in a program of intensive
audits of certain large tax-exempt hospital and health care facility
organizations and it has been reported that the tax-exempt status of some of
these organizations may be revoked. At this time, it is uncertain whether any
of the hospital and health care facility bonds held by the State Trust and
Umbrella Series will be affected by such audit proceedings.
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 the
revenues derived from mortgage loans to housing projects for low to moderate
income families. Single-family mortgage revenue bonds are issued for the
purpose of acquiring from originating financial institutions notes secured by
mortgages on residences.
Housing obligations are not general obligations of the issuer although
certain obligations may be supported to some degree by Federal, state or local
housing subsidy programs. Budgetary constraints experienced by these programs
as well as the failure by a state or local housing issuer to satisfy the
qualifications required for coverage under these programs or any legal or
administrative determinations that the coverage of these programs is not
available to a housing issuer, probably will result in a decrease or
elimination of subsidies available for payment of amounts due on the issuer's
obligations. The ability of housing issuers to make debt service payments on
their obligations will also be affected by various economic and non-economic
developments including, among other things, the achievement and maintenance of
sufficient occupancy levels and 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, employment and
income conditions prevailing in local markets, increases in construction
costs, taxes, utility costs and other operating expenses, the managerial
ability of project managers, changes in laws and governmental regulations and
economic trends generally in the localities in which the projects are
situated. Occupancy of multi-family housing projects may also be adversely
affected by high rent levels and income limitations imposed under Federal,
state or local programs.
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, and 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. Single-family issues are subject to
mandatory redemption in whole or in part from prepayments on underlying
mortgage loans; mortgage loans are frequently partially or completely prepaid
prior to their final stated maturities as a result of events such as declining
interest rates, sale of the mortgaged premises, default, condemnation or
casualty loss. Multi-family issues are characterized by mandatory redemption
at par upon the occurrence of monetary defaults or breaches of covenants by
the project operator. Additionally, housing obligations are generally subject
to mandatory partial redemption at par to the extent that proceeds from the
sale of the obligations are not allocated within a stated period (which may be
within a year of the date of issue). 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, in any event, reduce the
amount of income that would otherwise have been paid to Holders.
The tax exemption for certain housing revenue bonds depends on
qualification under Section 143 of the Internal Revenue Code of 1986, as
amended (the "Code"), in the case of single family mortgage revenue bonds or
Section 142(a)(7) of the Code or other provisions of Federal law in the case
of certain multi-family housing revenue bonds (including Section 8 assisted
bonds). These sections of the Code or other provisions of Federal law contain
certain ongoing requirements, including requirements relating to the cost and
location of the residences financed with the proceeds of the single family
mortgage revenue bonds and the income levels of tenants of the rental projects
financed with the proceeds of the multi-family housing revenue bonds. While
the issuers of the bonds and other parties, including the originators and
servicers of the single-family mortgages and the owners of the rental projects
financed with the multi-family housing revenue bonds, generally covenant to
meet these ongoing requirements and generally agree to institute procedures
designed to ensure that these requirements are met, there can be no assurance
that these ongoing requirements will be consistently met. The failure to meet
these requirements could cause the interest on the bonds to become taxable,
possibly retroactively to the date of issuance, thereby reducing the value of
the bonds, subjecting the Holders to unanticipated tax liabilities and
possibly requiring the Trustee to sell the bonds at reduced values.
Furthermore, any failure to meet these ongoing requirements might not
constitute an event of default under the applicable mortgage or permit the
holder to accelerate payment of the bond or require the issuer to redeem the
bond. In any event, where the mortgage is insured by the Federal Housing
Administration, its consent may be required before insurance proceeds would
become payable to redeem the mortgage bonds.
Power Facility Bonds. The ability of utilities to meet their
obligations with respect to revenue bonds issued on their behalf is dependent
on various factors, including the rates they may charge their customers, the
demand for a utility's services and the cost of providing those services.
Utilities, in particular investor-owned utilities, are 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. Any difficulty in
obtaining timely and adequate rate increases could adversely affect a
utility's results of operations.
The demand for a utility's services is influenced by, among other
factors, competition, weather conditions and economic conditions. Electric
utilities, for example, have experienced increased competition as a result of
the availability of other energy sources, the effects of conservation on the
use of electricity, self-generation by industrial customers and the generation
of electricity by co-generators and other independent power producers. Also,
increased competition will result if federal regulators determine that
utilities must open their transmission lines to competitors. Utilities which
distribute natural gas also are subject to competition from alternative fuels,
including fuel oil, propane and coal.
The utility industry is an increasing cost business making the cost of
generating electricity more expensive and heightening its sensitivity to
regulation. A utility's costs are influenced by the utility's cost of
capital, the availability and cost of fuel and other factors. In addition,
natural gas pipeline and distribution companies have incurred increased costs
as a result of long-term natural gas purchase contracts containing "take or
pay" provisions which require that they pay for natural gas even if natural
gas is not taken by them. There can be no assurance that a utility will be
able to pass on these increased costs to customers through increased rates.
Utilities incur substantial capital expenditures for plant and equipment. In
the future they will also incur increasing capital and operating expenses to
comply with environmental legislation such as the Clean Air Act of 1990, and
other energy, licensing and other laws and regulations relating to, among
other things, air emissions, the quality of drinking water, waste water
discharge, solid and hazardous substance handling and disposal, and siting and
licensing of facilities. Environmental legislation and regulations are
changing rapidly and are the subject of current public policy debate and
legislative proposals. It is increasingly likely that some or many utilities
will be subject to more stringent environmental standards in the future that
could result in significant capital expenditures. Future legislation and
regulation could include, among other things, regulation of so-called
electromagnetic fields associated with electric transmission and distribution
lines as well as emissions of carbon dioxide and other so-called greenhouse
gases associated with the burning of fossil fuels. Compliance with these
requirements may limit a utility's operations or require substantial
investments in new equipment and, as a result, may adversely affect a
utility's results of operations.
The electric utility industry in general is subject to various external
factors including (a) the effects of inflation upon the costs of operation and
construction, (b) substantially increased capital outlays and longer
construction periods for larger and more complex new generating units, (c)
uncertainties in predicting future load requirements, (d) increased financing
requirements coupled with limited availability of capital, (e) exposure to
cancellation and penalty charges on new generating units under construction,
(f) problems of cost and availability of fuel, (g) compliance with rapidly
changing and complex environmental, safety and licensing requirements, (h)
litigation and proposed legislation designed to delay or prevent construction
of generating and other facilities, (i) the uncertain effects of conservation
on the use of electric energy, (j) uncertainties associated with the
development of a national energy policy, (k) regulatory, political and
consumer resistance to rate increases and (l) increased competition as a
result of the availability of other energy sources. These factors may delay
the construction and increase the cost of new facilities, limit the use of, or
necessitate costly modifications to, existing facilities, impair the access of
electric utilities to credit markets, or substantially increase the cost of
credit for electric generating facilities. 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.
The National Energy Policy Act ("NEPA"), which became law in October,
1992, made it mandatory for a utility to permit non-utility generators of
electricity access to its transmission system for wholesale customers, thereby
increasing competition for electric utilities. NEPA also mandated demand-side
management policies to be considered by utilities. NEPA prohibits the Federal
Energy Regulatory Commission from mandating electric utilities to engage in
retail wheeling, which is competition among suppliers of electric generation
to provide electricity to retail customers (particularly industrial retail
customers) of a utility. However, under NEPA, a state can mandate retail
wheeling under certain conditions.
There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil
fuels. Congressional support for the increased regulation of air, water, and
soil contaminants is building and there are a number of pending or recently
enacted legislative proposals which may affect the electric utility industry.
In particular, on November 15, 1990, legislation was signed into law that
substantially revised the Clean Air Act (the "1990 Amendments"). The 1990
Amendments seek to improve the ambient air quality throughout the United
States by the year 2000. A main feature of the 1990 Amendments is the
reduction of sulphur dioxide and nitrogen oxide emissions caused by electric
utility power plants, particularly those fueled by coal. Under the 1990
Amendments the U.S. Environmental Protection Agency ("EPA") was required to
develop limits for nitrogen oxide emissions by 1993. The sulphur dioxide
reduction will be achieved in two phases. Phase I addresses specific
generating units named in the 1990 Amendments. In Phase II the total U.S.
emissions will be capped at 8.9 million tons by the year 2000. The 1990
Amendments contain provisions for allocating allowances to power plants based
on historical or calculated levels. An allowance is defined as the
authorization to emit one ton of sulphur dioxide.
The 1990 Amendments also provide for possible further regulation of
toxic air emissions from electric generating units pending the results of
several federal government studies to be conducted over three to four years
with respect to anticipated hazards to public health, available corrective
technologies, and mercury toxicity.
Electric utilities which own or operate nuclear power plants are exposed
to risks inherent in the nuclear industry. These risks include exposure to
new requirements resulting from extensive federal and state regulatory
oversight, public controversy, decommissioning costs, and spent fuel and
radioactive waste disposal issues. While nuclear power construction risks are
no longer of paramount concern, the emerging issue is radioactive waste
disposal. In addition, nuclear plants typically require substantial capital
additions and modifications throughout their operating lives to meet safety,
environmental, operational and regulatory requirements and to replace and
upgrade various plant systems. The high degree of regulatory monitoring and
controls imposed on nuclear plants could cause a plant to be out of service or
on limited service for long periods. When a nuclear facility owned by an
investor-owned utility or a state or local municipality is out of service or
operating on a limited service basis, the utility operator or its owners may
be liable for the recovery of replacement power costs. Risks of substantial
liability also arise from the operation of nuclear facilities and from the
use, handling, and possible radioactive emissions associated with nuclear
fuel. Insurance may not cover all types or amounts of loss which may be
experienced in connection with the ownership and operation of a nuclear plant
and severe financial consequences could result from a significant accident or
occurrence. The Nuclear Regulatory Commission has promulgated regulations
mandating the establishment of funded reserves to assure financial capability
for the eventual decommissioning of licensed nuclear facilities. These funds
are to be accrued from revenues in amounts currently estimated to be
sufficient to pay for decommissioning costs.
The ability of state and local joint action power agencies to make
payments on bonds they have issued is dependent in large part on payments made
to them pursuant to power supply or similar agreements. Courts in
Washington, Oregon and Idaho have held that certain agreements between the
Washington Public Power Supply System ("WPPSS") and the WPPSS participants are
unenforceable because the participants did not have the authority to enter
into the agreements. While these decisions are not specifically applicable to
agreements entered into by public entities in other states, they may cause a
reexamination of the legal structure and economic viability of certain
projects financed by joint power agencies, which might exacerbate some of the
problems referred to above and possibly lead to legal proceedings questioning
the enforceability of agreements upon which payment of these bonds may depend.
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 failure of
municipalities to utilize fully the facilities constructed by these
authorities, economic or population decline and resulting decline in revenue
from user charges, rising construction and maintenance costs and delays in
construction of facilities, impact of environmental requirements, failure or
inability to raise user charges in response to increased costs, the difficulty
of obtaining or discovering new supplies of fresh water, the effect of
conservation programs and the impact of "no growth" zoning ordinances. In
some cases this ability may be affected by 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, including 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, and, in the case of public institutions, the financial condition
of the relevant state or other governmental entity and its policies with
respect to education. The institution's ability to maintain enrollment levels
will depend on such factors as tuition costs, demographic trends, geographic
location, geographic diversity and quality of the student body, quality of the
faculty and the diversity of program offerings.
Legislative or regulatory action in the future at the Federal, state or
local level may directly or indirectly affect eligibility standards or reduce
or eliminate the availability of funds for certain types of student loans or
grant programs, including student aid, research grants and work-study
programs, and may affect indirect assistance for education.
Lease Rental Bonds. Lease rental bonds are issued for the most part 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 (administrative offices, convention
centers and prisons, for example) or the purchase of equipment (police cars
and computer systems, for example) that will be used by a state or local
government (the "lessee"). 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. Willingness to pay may be subject to
changes in the views of citizens and government officials as to the essential
nature of the finance project. Lease rental bonds are subject, in almost all
cases, to the annual appropriation risk, i.e., 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-rental bonds cease in the event that damage, destruction or
condemnation of the project prevents its use by the lessee. (In these cases,
insurance provisions and reserve funds designed to alleviate this risk become
important credit factors). 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. Some of these issues, particularly those
for equipment purchase, contain the so-called "substitution safeguard", which
bars the lessee government, in the event it defaults on its rental payments,
from the purchase or use of similar equipment for a certain period of time.
This safeguard is designed to insure that the lessee government will
appropriate the necessary funds even though it is not legally obligated to do
so, but its legality remains untested in most, if not all, states.
Capital Improvement Facility Bonds. The Portfolio of a State Trust and
Umbrella Series 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 which bonds are secured by the proceeds of the sale of the bonds,
proceeds from investments and the indebtedness of a local political
subdivision or agency. The risks of an investment in such bonds include the
risk of possible prepayment or failure of payment of proceeds on and default
of the underlying debt.
Solid Waste Disposal Bonds. Bonds issued for solid waste disposal
facilities are generally payable from tipping fees and from revenues that may
be earned by the facility on the sale of electrical energy generated in the
combustion of waste products. The ability of solid waste disposal facilities
to meet their obligations depends upon the continued use of the facility, the
successful and efficient operation of the facility and, in the case of
waste-to-energy facilities, the continued ability of the facility to generate
electricity on a commercial basis. All of these factors may be affected by a
failure of municipalities to fully utilize the facilities, an insufficient
supply of waste for disposal due to economic or population decline, rising
construction and maintenance costs, any delays in construction of facilities,
lower-cost alternative modes of waste processing and changes in environmental
regulations. Because of the relatively short history of this type of
financing, there may be technological risks involved in the satisfactory
construction or operation of the projects exceeding those associated with most
municipal enterprise projects. 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.
These costs include compliance with frequently changing and complex regulatory
requirements, the cost of obtaining construction and operating permits, the
cost of conforming to prescribed and changing equipment standards and required
methods of operation and, for incinerators or waste-to-energy facilities, the
cost of disposing of the waste residue that remains after the disposal
process in an environmentally safe manner. In addition, waste disposal
facilities frequently face substantial opposition by environmental groups and
officials to their location and operation, to the possible adverse effects
upon the public health and the environment that may be caused by wastes
disposed of at the facilities and to alleged improper operating procedures.
Waste disposal facilities benefit from laws which require waste to be disposed
of in a certain manner but any relaxation of these laws could cause a decline
in demand for the facilities' services. Finally, waste-to-energy facilities
are concerned with many of the same issues facing utilities insofar as they
derive revenues from the sale of energy to local power utilities (see Power
Facility Bonds above).
Moral Obligation Bonds. The State Trust and Umbrella Series 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. Even though the state may be called on to restore any deficits in
capital reserve funds of the agencies or authorities which issued the bonds,
any restoration 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 (including airport terminals and
maintenance facilities), bridges, marine terminals, turnpikes and port
authorities. For example, the major portion of gross airport operating income
is generally derived from fees received from signatory airlines pursuant to
use agreements which consist of annual payments for airport use, occupancy of
certain terminal space, facilities, service fees, concessions and leases.
Airport operating income may therefore be affected by the ability of the
airlines to meet their obligations under the use agreements. The air
transport industry is experiencing significant variations in earnings and
traffic, due to increased competition, excess capacity, increased aviation
fuel costs, deregulation, traffic constraints, the recent recession and other
factors. As a result, several airlines experienced severe financial
difficulties. Several airlines including America West Airlines sought
protection from their creditors under Chapter 11 of the Bankruptcy Code. In
addition, other airlines such as Midway Airlines, Inc., Eastern Airlines, Inc.
and Pan American Corporation have been liquidated. However, Northwest
Airlines, Continental Airlines and Trans World Airlines emerged from
bankruptcy. The Sponsor cannot predict what effect these industry conditions
may have on airport revenues which are dependent for payment on the financial
condition of the airlines and their usage of the particular airport facility.
Furthermore, proposed Legislation would provide the U.S. Secretary of
Transportation with the temporary authority to freeze airport fees upon the
occurrence of disputes between a particular airport facility and the airlines
utilizing that facility.
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, lower cost of alternative modes of
transportation or scarcity of fuel and reduction or loss of rents.
Special Tax Bonds. Special tax bonds are payable from and secured by
the revenues derived by a municipality from a particular tax such as 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 due to a general decline in the local
economy or population or due to a decline in the consumption, use or cost of
the goods and services that are subject to taxation. 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 ("project
areas"). 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,
caused either by economic factors beyond the Issuer's control (such as a
relocation out of the project area by one or more major property owners) or by
destruction of property due to natural or other disasters; successful appeals
by property owners of assessed valuations; substantial delinquencies in the
payment of property taxes; or imposition of any constitutional or legislative
property tax rate decrease.
Transit Authority Bonds. Mass transit is generally not self-supporting
from fare revenues. Therefore, additional financial resources must be made
available to ensure operation of mass transit systems as well as the timely
payment of debt service. Often such financial resources include Federal and
state subsidies, lease rentals paid by funds of the state or local government
or a pledge of a special tax such as a sales tax or a property 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 State Trust and Umbrella
Series 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.
Puerto Rico. The Portfolio may contain bonds of issuers which will be
affected by general economic conditions in Puerto Rico. The economy of Puerto
Rico is closely integrated with that of the mainland United States. During
fiscal year 1995, approximately 89% of Puerto Rico's exports were to the
United States mainland, which was also the source of 65% of Puerto Rico's
imports. In fiscal 1995, Puerto Rico experienced a $4.6 billion positive
adjusted trade balance. The economy of Puerto Rico is dominated by the
manufacturing and service sectors. The manufacturing sector has experienced a
basic change over the years as a result of increased emphasis on higher wage,
high technology industries such as pharmaceuticals, electronics, computers,
microprocessors, professional and scientific instruments, and certain high
technology machinery and equipment. The service sector, including finance,
insurance and real estate, wholesale and retail trade, and hotel and related
services, also plays a major role in the economy. It ranks second only to
manufacturing in contribution to the gross domestic product and leads all
sectors in providing employment. In recent years, the service sector has
experienced significant growth in response to and paralleling the expansion of
the manufacturing sector. Since fiscal 1985, personal income, both aggregate
and per capita, has increased consistently in each fiscal year. In fiscal
1995, aggregate personal income was $27.0 billion ($22.5 billion in 1987
prices) and personal income per capita was $7,296 ($6,074 in 1987 prices).
Personal income includes transfer payments to individuals in Puerto Rico under
various social programs. Total federal payments to Puerto Rico, which include
many types in addition to federal transfer payments, are lower on a per capita
basis in Puerto Rico than in any state. Transfer payments to individuals in
fiscal 1994 were $5.9 billion, of which $4.0 billion, or 67.6%, represent
entitlement to individuals who had previously performed services or made
contributions under programs such as Social Security, Veterans Benefits and
Medicare. The number of persons employed in Puerto Rico during fiscal 1995
averaged 1,051,000, an increase of 4.0% over fiscal 1994. The unemployment
rate in Puerto Rico for fiscal 1995 decreased from 16.0% to 13.8%. The Puerto
Rico Planning Board's most recent gross product forecast for fiscal 1996, made
in February 1995, showed an increase of 2.7%. The Planning Board's Economic
Activity Index, a composite index for thirteen economic indicators, increased
2.7% for the first seven months of fiscal 1995 compared to the same period of
fiscal 1994, which period showed an increase of 1.7% over the same period of
fiscal 1993. During the first four months of fiscal 1996 the Index increased
1.8% compared to the same period of fiscal 1995, which period showed an
increase of 2.7% over the same period of fiscal 1994. Growth in the Puerto
Rico economy in fiscal 1996 depends on several factors, including the state of
the United States economy and the relative stability in the price of oil
imports, the exchange value of the U.S. dollar, the level of federal transfers
and the cost of borrowing.
Insurance. Certain Bonds (the "Insured Bonds") may be insured or
guaranteed by AMBAC Indemnity Corporation ("AMBAC"), Asset Guaranty
Reinsurance Company ("Asset Guaranty"), Capital Guaranty Insurance Company
("CGIC"), 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. The ratings are subject to change at any time at the discretion of
the rating agencies. In determining whether to insure bonds, the Insurance
Companies severally apply their own standards. The cost of this insurance is
borne either by the issuers or previous owners of the bonds or by the Sponsor.
The insurance policies are non-cancellable and will continue in force so long
as the Insured Bonds are outstanding and the insurers remain in business. The
insurance policies guarantee the timely payment of principal and interest on
but do not guarantee the market value of the Insured Bonds or the value of the
Units. The insurance policies generally do not provide for accelerated
payments of principal or, except in the case of any portfolio insurance
policies, cover redemptions resulting from events of taxability. If the
issuer of any Insured Bond should fail to make an interest or principal
payment, the insurance policies generally provide that the Trustee or its
agent shall give notice of nonpayment to the Insurance Company or its agent
and provide evidence of the Trustee's right to receive payment. The Insurance
Company is then required to disburse the amount of the failed payment to the
Trustee or its agent and is thereafter subrogated to the Trustee's right to
receive payment from the issuer.
The following are brief descriptions of certain of the insurance
companies that may insure or guarantee certain Bonds. The financial
information presented for each company has been determined on a statutory
basis and is unaudited.
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by
the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia and the
Commonwealth of Puerto Rico, with admitted assets of approximately
$2,440,000,000 (unaudited) and statutory capital of approximately
$1,387,000,000 (unaudited) as of March 31, 1996. Statutory capital consists
of AMBAC's policyholders' surplus and statutory contingency reserve. AMBAC is
a wholly owned subsidiary of AMBAC Inc., a 100% publicly-held company.
Moody's and Fitch have each assigned a triple-A claims-paying ability rating
to AMBAC.
AMBAC has obtained a ruling from the Internal Revenue Service to the
effect that the insuring of an obligation by AMBAC will not affect the
treatment for federal income tax purposes of interest on such obligation and
that insurance proceeds representing maturing interest paid by AMBAC under
policy provisions substantially identical to those contained in its municipal
bond insurance policy shall treated for federal income tax purposes in the
same manner as if such payments were made by the issuer of the Bonds.
Asset Guaranty is a New York State insurance company licensed to write
financial guarantee, credit, residual value and surety insurance. Asset
Guaranty commenced operations in mid-1988 by providing reinsurance to several
major monoline insurers. Asset Guaranty also issued limited amounts of
primary financial guaranty insurance, but not in direct competition with the
primary mono-line companies for which it acts as a reinsurer. The parent
holding company of Asset Guaranty, Asset Guarantee Inc. (AGI), merged with
Enhance Financial Services (EFS) in June, 1990 to form Enhance Financial
Services Group Inc. (EFSG). The two main, 100%-owned subsidiaries of EFSG,
Asset Guaranty and Enhance Reinsurance Company (ERC), share common management
and physical resources. As of April 30, 1996 EFSG is 55.3% owned by the
public, 30.2% owned by US West Inc., 8.9% by senior management and 5.6% by
Swiss Reinsurance Company by senior management. Both ERC and Asset Guaranty
are rated "AAA" for claims paying ability by Duff & Phelps. ERC is rated
triple-A for claims-paying ability by both S&P and Moody's. Asset Guaranty
received a "AA" claims-paying-ability rating from S&P during August 1993, but
remains unrated by Moody's. As of March 31, 1996 Asset Guaranty had admitted
assets of approximately $187,000,000 and policyholders' surplus of
approximately $82,000,000.
CAPMAC commenced operations in December 1987, as the second mono-line
financial guaranty insurance company (after FSA) organized solely to insure
non-municipal obligations. CAPMAC, a New York corporation, is a wholly-owned
subsidiary of CAPMAC Holdings, Inc. (CHI), which was sold in 1992 by Citibank
(New York State) to a group of 12 investors led by the following: Dillon
Read's Saratoga Partners II; L.P. (Saratoga), an acquisition fund; Caprock
Management, Inc., representing Rockefeller family interests; Citigrowth Fund,
a Citicorp venture capital group; and CAPMAC senior management and staff.
These groups control approximately 70% of the stock of CHI. CAPMAC had
traditionally specialized in guaranteeing consumer loan and trade receivable
asset-backed securities. Under the new ownership group CAPMAC intends to
become involved in the municipal bond insurance business, as well as their
traditional non-municipal business. As of March 31, 1995 CAPMAC's admitted
assets were approximately $210,000,000 and its policyholders' surplus was
approximately $138,000,000.
FSA is a monoline insurance company incorporated on March 16, 1984 under
the laws of the State of New York and is licensed, directly or through its
subsidiaries, to engage in the financial guaranty insurance business in all 50
states, the District of Columbia and Puerto Rico.
FSA is a wholly owned subsidiary of Financial Security Assurance
Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Holdings is owned approximately 51% by US West Capital Corporation ("US
WEST"), 8% by Fund American Enterprises Holdings, Inc. ("Fund American"), and
6% by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine"). US WEST
is a subsidiary of US WEST, Inc., which operates businesses involved in
communications, data solutions, marketing services and capital assets,
including the provision of telephone services in 14 states in the western and
midwestern United States. Fund American is a financial services holding
company whose principal operating subsidiary is one of the nation's largest
mortgage servicers. Tokio Marine is a major Japanese property and casualty
insurance company. US WEST has announced its intention to dispose of its
remaining interest in Holdings as part of its strategic plan to withdraw from
businesses not directly involved in telecommunications. Fund American has
certain rights to acquire and vote additional shares of Holdings from US WEST
and Holdings. No shareholder of Holdings is obligated to pay any debt of FSA
or any claim under any insurance policy issued by FSA or to make any
additional contribution to the capital of FSA.
On December 20, 1995, Capital Guaranty Corporation ("CGC") merged with a
subsidiary of Holding's, and CGS's principal operating subsidiary, became a
wholly owned subsidiary of FSA. CGIC was a financial guaranty insurer of
municipal bonds in the domestic market.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by FSA or any of its subsidiaries are reinsured among such
companies on an agreed upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitation. In addition, FSA reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers
under various quota-share treaties and on a transaction-by-transaction base.
Such reinsurance is utilized by FSA as a risk management device and to comply
with certain statutory and rating agency requirements; it does not alter or
limit FSA's obligations under any financial guaranty insurance policy. As of
December 31, 1995, total shareholder equity of FSA and its wholly-owned
subsidiaries was (unaudited) $789,986,000 and total unearned premium reserves
was (unaudited) $330,349,000.
Connie Lee, a stock insurance company incorporated in Wisconsin, is a
wholly-owned subsidiary of College Construction Loan Insurance Association, a
stockholder-owned District of Columbia Insurance holding company whose
creation was authorized by the 1986 amendments to the Higher Education Act.
The United States Department of Education and Student Loan Marketing
Association are founding shareholders of College Construction Loan Insurance
Association. As a federally authorized company, Connie Lee's structure and
operational authorities are subject to revisions by amendments to the Higher
Education Act or other federal enactments. CONNIE LEE IS NOT AN AGENCY OR
INSTRUMENTALITY OF THE UNITED STATES GOVERNMENT, ALTHOUGH THE UNITED STATES
GOVERNMENT IS A STOCKHOLDER OF COLLEGE CONSTRUCTION LOAN INSURANCE
ASSOCIATION. THE OBLIGATIONS OF CONNIE LEE ARE NOT OBLIGATIONS OF THE UNITED
STATES GOVERNMENT. As of March 31, 1996, its total admitted assets were
approximately $215,702,727 and policyholders' surplus was approximately
$111,462,158.
Financial Guaranty, a New York stock insurance company, is a
wholly-owned subsidiary of FGIC Corporation which is wholly-owned by General
Electric Capital Corporation. The investors in the FGIC Corporation are not
obligated to pay the debts of or the claims against Financial Guaranty.
Financial Guaranty commenced its business of providing insurance and financial
guarantees for a variety of investment instruments in January 1984 and is
currently authorized to provide insurance in 50 states and the District of
Columbia. It files reports with state regulatory agencies and is subject to
audit and review by those authorities. As of March 31, 1996, its total
admitted assets were approximately $2,314,000,000 and its policyholders'
surplus was approximately $1,032,675,000.
MBIA is the principal operating subsidiary of MBIA Inc. The principal
shareholders of MBIA Inc. were originally Aetna Casualty and Surety Company,
The Fund American Companies, Inc., subsidiaries of CIGNA Corporation and
Credit Local de France, CAECL, S.A. These principal shareholders now own
approximately 13% of the outstanding common stock of MBIA Inc., following a
series of four public equity offerings over a five-year period. As of March
31, 1996, MBIA had admitted assets of approximately $4 billion and
policyholders' surplus of approximately $1,300,000,000.
Insurance companies are subject to regulation and supervision in the
jurisdictions in which they do business under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. This regulation, supervision and administration relate, among
other things, to: the standards of solvency which must be met and maintained;
the licensing of insurers and their agents; the nature of and limitations on
investments; deposits of securities for the benefit of policyholders; approval
of policy forms and premium rates; periodic examinations of the affairs of
insurance companies; annual and other reports required to be filed on the
financial condition of insurers or for other purposes; and requirements
regarding reserves for unearned premiums, losses and other matters.
Regulatory agencies require that premium rates not be excessive, inadequate or
unfairly discriminatory. Insurance regulation in many states also includes
"assigned risk" plans, reinsurance facilities, and joint underwriting
associations, under which all insurers writing particular lines of insurance
within the jurisdiction must accept, for one or more of those lines, risks
unable to secure coverage in voluntary markets. A significant portion of the
assets of insurance companies is required by law to be held in reserve against
potential claims on policies and is not available to general creditors.
Although the Federal government does not regulate the business of
insurance, Federal initiatives can significantly impact the insurance
business. Current and proposed Federal measures which may significantly
affect the insurance business include pension regulation (ERISA), controls on
medical care costs, minimum standards for no-fault automobile insurance,
national health insurance, personal privacy protection, tax law changes
affecting life insurance companies or the relative desirability of various
personal investment vehicles and repeal of the current antitrust exemption for
the insurance business. (If this exemption is eliminated, it will
substantially affect the way premium rates are set by all property-liability
insurers.) In addition, the Federal government operates in some cases as a
co-insurer with the private sector insurance companies.
Insurance companies are also affected by a variety of state and Federal
regulatory measures and judicial decisions that define and extend the risks
and benefits for which insurance is sought and provided. These include
judicial redefinitions of risk exposure in areas such as products liability
and state and Federal extension and protection of employee benefits, including
pension, workers' compensation, and disability benefits. These developments
may result in short-term adverse effects on the profitability of various lines
of insurance. Longer-term adverse effects can often be minimized through
prompt repricing of coverages and revision of policy terms. In some
instances, these developments may create new opportunities for business
growth. All insurance companies write policies-and set premiums based on
actuarial assumptions about mortality, injury, the occurrence of accidents and
other insured events. These assumptions, while well supported by past
experience, necessarily do not take account of future events. The occurrence
in the future of unforeseen circumstances could affect the financial condition
of one or more insurance companies. The insurance business is highly
competitive and with the deregulation of financial service businesses, it
should become more competitive. In addition, insurance companies may expand
into non-traditional lines of business which may involve different types of
risks.
The above financial 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 Initial Date in respect of any Bonds which
might reasonably be expected to have a material adverse effect upon the State
Trust and Umbrella Series. At any time after the Initial 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 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.
Under the Federal Bankruptcy Act, a political subdivision or public
agency or instrumentality of any state, including municipalities, may proceed
to restructure or otherwise alter the terms of its obligations, including
those of the type comprising the State Trust and Umbrella Series' Portfolio.
The Sponsor are unable to predict what effect, if any, this legislation might
have on the State Trust and Umbrella Series.
From time to time Congress considers proposals to tax the interest on
state and local obligations, such as the Bonds. The Supreme Court clarified
in South Carolina v. Baker (decided April 20, 1988) that the U.S. Constitution
does not prohibit Congress from passing a nondiscriminatory tax on interest on
state and local obligations. This type of legislation, if enacted into law,
could adversely affect an investment in Units. Holders are urged to consult
their own tax advisers.
Tax Exemption. In the opinion of bond counsel rendered on the date of
issuance of each Bond, the interest on each Bond is excludable from gross
income under existing law for regular Federal income tax purposes (except in
certain circumstances depending on the Holder) but may be subject to state and
local taxes. As discussed under Taxes below, interest on some or all of the
Bonds may become subject to regular Federal income tax, perhaps retroactively
to their date of issuance, as a result of changes in Federal law or as a
result of the failure of issuers (or other users of the proceeds of the Bonds)
to comply with certain ongoing requirements.
Moreover, the Internal Revenue Service is expanding its examination
program with respect to tax-exempt bonds. The expanded examination program
will consist of, among other measures, increased enforcement against abusive
transactions, broader audit coverage (including the expected issuance of audit
guidelines) and expanded compliance achieved by means of expected revisions to
the tax-exempt bond information return forms. At this time, it is uncertain
whether the tax exempt status of any of the Bonds would be affected by such
proceedings, or whether such effect, if any, would be retroactive.
In certain cases, a Bond may provide that if the interest on the Bond
should ultimately be determined to be taxable, the Bond would become due and
payable by its issuer, and, in addition, may provide that any related letter
of credit or other security could be called upon if the issuer failed to
satisfy all or part of its obligation. In other cases, however, a Bond may
not provide for the acceleration or redemption of the Bond or a call upon the
related letter of credit or other security upon a determination of taxability.
In those cases in which a Bond does not provide for acceleration or redemption
or in which both the issuer and the bank or other entity issuing the letter of
credit or other security are unable to meet their obligations to pay the
amounts due on the Bond as a result of a determination of taxability, the
Trustee would be obligated to sell the Bond and, since it would be sold as a
taxable security, it is expected that it would have to be sold at a
substantial discount from current market price. In addition, as mentioned
above, under certain circumstances Holders could be required to pay income tax
on interest received prior to the date on which the interest is determined to
be taxable.
The Units
On the date of this Prospectus, each Unit in a State Trust and Umbrella
Series represented a fractional undivided interest in the principal and net
income of such State Trust and Umbrella Series as is set forth in the "Summary
of Essential Information" of Part A. If any Units are redeemed after the date
of this Prospectus by the Trustee, the principal amount of the Bonds in the
affected State Trust and Umbrella Series will be reduced by an amount
allocable to redeemed Units and the fractional undivided interest in the
affected State Trust and Umbrella Series represented by each unredeemed Unit
will be increased. Units will remain outstanding until redeemed upon tender
to the Trustee by any Unit holder, which may include the Sponsor, or until the
termination of the Trust Agreement. (See "Amendment and Termination of the
Trust Agreement--Termination".) References in this Prospectus to "Units" are
to Units which represented the fractional undivided interest indicated in the
"Summary of Essential Information" of Part A.
Estimated Current Return and Estimated Long-Term Return
Under accepted bond practice, tax-exempt bonds are customarily offered
to investors on a "yield price" basis (as contrasted to a "dollar price"
basis) at the lesser of the yield as computed to maturity of the bonds or to
an earlier redemption date and which takes into account not only the interest
payable on the bonds but also the amortization or accretion to a specified
date of any premium over or discount from the par (maturity) value in the
bond's purchase price. Since Units of each State Trust and Umbrella Series
are offered on a dollar price basis, the rate of return on an investment in
Units of a State Trust and Umbrella Series is stated in terms of "Estimated
Current Return", computed by dividing the Net Annual Income per Unit by the
Public Offering Price per Unit. Any change in either the Net Annual Income
per Unit or the Public Offering Price per Unit will result in a change in the
Estimated Current Return. The Net Annual Income per Unit of a State Trust and
Umbrella Series is determined by dividing the total annual interest income to
such State Trust and Umbrella Series, less estimated annual fees and expenses
of the Trustee, the Sponsor, and the Evaluator, by the number of Units of such
State Trust and Umbrella Series outstanding. The Net Annual Income per Unit
of a State Trust and Umbrella Series will change as the income or expenses of
such State Trust and Umbrella Series changes and as Bonds are redeemed, paid,
sold or exchanged. For a statement of the Net Annual Income per Unit and the
Estimated Current Return based on the Public Offering Price, see Part A under
"Summary of Essential Information".
The Estimated Long-Term Return for a State Trust and Umbrella Series is
a measure of the return to the investor over the estimated life of a State
Trust and Umbrella Series. The Estimated Long-Term Return represents an
average of the yields to maturity (or call) of the Bonds in a State Trust and
Umbrella Series' portfolio calculated in accordance with accepted bond
practice and adjusted to reflect expenses and sales charges. In calculating
Estimated Long-Term Return, the average yield for a State Trust and Umbrella
Series' portfolio is derived by weighing each Bond's yield by the market value
of the Bond and by the amount of time remaining to the date to which the Bond
is priced. Once the average portfolio yield is computed, this figure is then
reduced to reflect estimated expenses and the effect of the maximum sales
charge paid by investors.
A State Trust and Umbrella Series may experience expenses and portfolio
charges different from those assumed in the calculation of Estimated Long-Term
Return. There thus can be no assurance that the Estimated Current Returns or
Estimated Long-Term Returns quoted for a State Trust and Umbrella Series will
be realized in the future. Since both Estimated Current Return and Estimated
Long-Term Return quoted on a given business day are based on the market value
of the underlying Bonds on that day, subsequent calculations of these
performance measures will reflect the then-current market value of the
underlying Bonds and may be higher or lower.
TAXES
The following discussion addresses only the tax consequences of Units
held as capital assets and does not address the tax consequences of Units held
by dealers, financial institutions or insurance companies.
In the opinion of Battle Fowler, LLP, special counsel for the Sponsor,
under existing law:
The Trust is not an association taxable as a corporation for Federal
income tax purposes, and income received by the Trust will be treated as the
income of the Unit holders ("Holders") in the manner set forth below.
Each Holder of Units of a Trust will be considered the owner of a pro
rata portion of each Bond in the State Trust and Umbrella Series under the
grantor trust rules of Sections 671-679 of the Internal Revenue Code of 1986,
as amended (the "Code"). In order to determine the face amount of a Holder's
pro rata portion of each Bond on the Date of Deposit, see "Aggregate
Principal" under "Portfolio of Securities". The total cost to a Holder of his
Units, including sales charges, is allocated to his pro rata portion of each
Bond, in proportion to the fair market values thereof on the date the Holder
purchases his Units, in order to determine his tax basis for his pro rata
portion of each Bond. In order for a Holder who purchases his Units on the
Date of Deposit to determine the fair market value of his pro rata portion of
each Bond on such date, see "Cost of Securities to Trust" under "Portfolio of
Securities".
Each Holder of Units of a Trust will be considered to have received the
interest on his pro rata portion of each Bond when interest on the Bond is
received by the State Trust and Umbrella Series. In the opinion of bond
counsel (delivered on the date of issuance of each Bond), such interest will
be excludable from gross income for regular Federal income tax purposes
(except in certain limited circumstances referred to below). Amounts received
by the State Trust and Umbrella Series pursuant to a bank letter of credit,
guarantee or insurance policy with respect to payments of principal, premium
or interest on a Bond in the State Trust and Umbrella Series will be treated
for Federal income tax purposes in the same manner as if such amounts were
paid by the issuer of the Bond.
The State Trust and Umbrella Series may contain Bonds which were
originally issued at a discount ("original issue discount"). The following
principles will apply to each Holder's pro rata portion of any Bond originally
issued at a discount. In general, original issue discount is defined as the
difference between the price at which a debt obligation was issued and its
stated redemption price at maturity. Original issue discount on a tax-exempt
obligation issued after September 3, 1982, is deemed to accrue as tax-exempt
interest over the life of the obligation under a formula based on the
compounding of interest. Original issue discount on a tax-exempt obligation
issued before July 2, 1982 is deemed to accrue as tax-exempt interest ratably
over the life of the obligation. Original issue discount on any tax-exempt
obligation issued during the period beginning July 2, 1982 and ending
September 3, 1982 is also deemed to accrue as tax-exempt interest over the
life of the obligation, although it is not clear whether such accrual is
ratable or is determined under a formula based on the compounding of interest.
If a Holder's tax basis for his pro rata portion of a Bond issued with
original issue discount is greater than its "adjusted issue price" but less
than its stated redemption price at maturity (as may be adjusted for certain
payments), the Holder will be considered to have purchased his pro rata
portion of the Bond at an "acquisition premium." A Holder's adjusted tax basis
for his pro rata portion of a Bond issued with original issue discount will
include original issue discount accrued during the period such Holder held his
Units. Such increases to the Holder's tax basis in his pro rata portion of the
Bond resulting from the accrual of original issue discount, however, will be
reduced by the amortization of any such acquisition premium.
If a Holder's tax basis for his pro rata portion of a Bond exceeds the
redemption price at maturity thereof (subject to certain adjustments), the
Holder will be considered to have purchased his pro rata portion of the Bond
with "amortizable bond premium". The Holder is required to amortize such bond
premium over the term of the Bond. Such amortization is only a reduction of
basis for his pro rata portion of the Bond and does not result in any
deduction against the Holder's income. Therefore, under some circumstances, a
Holder may recognize taxable gain when his pro rata portion of a Bond is
disposed of for an amount equal to or less than his original tax basis
therefor.
A Holder will recognize taxable gain or loss when all or part of his pro
rata portion of a Bond is disposed of by the State Trust and Umbrella Series
for an amount greater or less than his adjusted tax basis. Any such taxable
gain or loss will be capital gain or loss, except that any gain from the
disposition of a Holder's pro rata portion of a Bond acquired by the Holder at
a "market discount" (i.e., where the Holder's original tax basis for his pro
rata portion of the Bond (plus any original issue discount which will accrue
thereon until its maturity) is less than its stated redemption price at
maturity) would be treated as ordinary income to the extent the gain does not
exceed the accrued market discount. Capital gains are generally taxed at the
same rate as ordinary income. However, the excess of net long-term capital
gains over net short-term capital losses may be taxed at a lower rate than
ordinary income for certain noncorporate taxpayers. A capital gain or loss is
long-term if the asset is held for more than one year and short-term if held
for one year or less. The deduction of capital losses is subject to
limitations. A Holder will also be considered to have disposed of all or part
of his pro rata portion of each Bond when he sells or redeems all or some of
his Units.
Under Section 265 of the Code, a Holder (except a corporate Holder) is
not entitled to a deduction for his pro rata share of fees and expenses of the
State Trust and Umbrella Series because the fees and expenses are incurred in
connection with the production of tax-exempt income. Further, if borrowed
funds are used by a Holder to purchase or carry Units of the State Trust and
Umbrella Series, interest on such indebtedness will not be deductible for
Federal income tax purposes. In addition, under rules used by the Internal
Revenue Service, the purchase of Units may be considered to have been made
with borrowed funds even though the borrowed funds are not directly traceable
to the purchase of Units. Similar rules may be applicable for state tax
purposes.
From time to time proposals are introduced in Congress and state
legislatures which, if enacted into law, could have an adverse impact on the
tax-exempt status of the Bonds. It is impossible to predict whether any
legislation in respect of the tax status of interest on such obligations may
be proposed and eventually enacted at the Federal or state level.
The foregoing discussion relates only to Federal and certain aspects of
New York State and City income taxes. Depending on their state of residence,
Holders may be subject to state and local taxation and should consult their
own tax advisers in this regard.
* * * * *
Interest on certain tax-exempt bonds issued after August 7, 1986 will be
a preference item for purposes of the alternative minimum tax ("AMT"). The
Sponsor believe that interest (including any original issue discount) on the
Bonds should not be subject to the AMT for individuals or corporations under
this rule. A corporate Holder should be aware, however, that the accrual or
receipt of tax-exempt interest not subject to the AMT may give rise to an
alternative minimum tax liability (or increase an existing liability) because
the interest income will be included in the corporation's "adjusted current
earnings" for purposes of the adjustment to alternative minimum taxable income
required by Section 56(g) of the Code and will be taken into account for
purposes of the environmental tax on corporations under Section 59A of the
Code, which is based on an alternative minimum taxable income.
In addition, interest on the Bonds must be taken into consideration in
computing the portion, if any, of social security benefits that will be
included in an individual's gross income and subject to Federal income tax.
Holders are urged to consult their own tax advisers concerning an investment
in Units.
At the time of issuance of each Bond, an opinion relating to the
validity of the Bond and to the exemption of interest thereon from regular
Federal income taxes was or will be rendered by bond counsel. Neither the
Sponsor nor Battle Fowler LLP nor any of the special counsel for state tax
matters have made or will make any review of the proceedings relating to the
issuance of the Bonds or the basis for these opinions. The tax exemption is
dependent upon the issuer's (and other users') compliance with certain ongoing
requirements, and the opinion of bond counsel assumes that these requirements
will be complied with. However, there can be no assurance that the issuer (and
other users) will comply with these requirements, in which event the interest
on the Bond could be determined to be taxable retroactively to the date of
issuance.
In the case of certain of the Bonds, the opinions of bond counsel
indicate that interest on such Bonds received by a "substantial user" of the
facilities being financed with the proceeds of such Bonds, or persons related
thereto, for periods while such Bonds are held by such a user or related
person, will not be exempt from regular Federal income taxes, although
interest on such Bonds received by others would be exempt from regular Federal
income taxes. "Substantial user" is defined under U.S. Treasury Regulations to
include only a person whose gross revenue derived with respect to the
facilities financed by the issuance of bonds is more than 5% of the total
revenue derived by all users of such facilities, or who occupies more than 5%
of the usable area of such facilities or for whom such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
persons" are defined to include certain related natural persons, affiliated
corporations, partners and partnerships. Similar rules may be applicable for
state tax purposes.
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 State Trust and Umbrella Series 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 State
Trust and Umbrella Series of any Bond), and the fees and expenses paid by the
State Trust and Umbrella Series. 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.
The description of Federal tax consequences applies separately for each
State Trust and Umbrella Series. Below, arranged alphabetically by state, is a
description of certain state and local tax consequences for residents of the
state and locality for which such State Trust is named.
EXPENSES AND CHARGES
Initial Expenses. At no cost to the State Trust and Umbrella Series,
the Sponsor has borne all the expenses of creating and establishing each
Multistate Trust or Umbrella Series with a Date of Deposit prior to June 22,
1995, including the cost of the initial preparation and execution of the Trust
Agreement, initial preparation and printing of the certificates for Units, the
fees of the Evaluator during the initial public offering, legal expenses,
advertising and selling expenses and other out-of-pocket expenses. All or
some portion of the expenses incurred in establishing each Multistate Trust or
Umbrella Series with a Date of Deposit on or after June 22, 1995, 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 have been paid by the
Trust, and amortized over five years. The costs of maintaining the secondary
market, such as printing, legal and accounting, will be borne by the Sponsor
except as otherwise provided in the Trust Agreement.
Trustee's, Sponsor's and Evaluator's Fees--The Trustee will receive for
its ordinary recurring services to each Multistate Trust or Umbrella Series an
annual fee in the amount set forth in the "Summary of Essential Information"
of Part A. For a discussion of the services performed by the Trustee pursuant
to its obligations under the Trust Agreement, see "Rights of Unit Holders".
The Trustee will receive the benefit of any reasonable cash balances in the
Interest and Principal accounts.
The Portfolio supervision fee (the "Supervision Fee"), which is earned
for Portfolio supervisory services is based upon the greatest face amount of
Bonds in the Trust at any time during the calendar year with respect to which
the fee is being computed. The Supervision Fee has been incurred by
Portfolios which have come into existence after August 14, 1991, beginning
with Series 345, initially, and each Series, in existence, thereafter.
The Supervision Fee, which is not to exceed the amount set forth in Part
A--"Summary of Essential Information", may exceed the actual costs of
providing Portfolio supervisory services for such Trust, but at no time will
the total amount the Sponsor receives for Portfolio supervisory services
rendered to all series of Tax Exempt Securities Trust in any calendar year
exceed the aggregate cost to them of supplying such services in such year. In
addition, the Sponsor may also be reimbursed for bookkeeping and other
administrative services provided to the Trust in amounts not exceeding their
costs of providing these services.
The Evaluator determines the aggregate bid price of the underlying
securities on a daily basis at a fee in the amount set forth under Part A,
"Summary of Essential Information," for each evaluation of the Bonds in a
State Trust and Umbrella Series. For a discussion of the services performed
by the Evaluator pursuant to its obligations under the Trust Agreement, see
"Evaluator--Responsibility" and "Public Offering--Offering Price".
Any of such fees may be increased without approval of the Unit holders
by amounts not exceeding proportionate increases in consumer prices for
services as measured by the United States Department of Labor's Consumer Price
Index entitled "All Services Less Rent" or, if such Index is no longer
published, in a similar index to be determined by the Trustee and the Sponsor.
In addition, at the time of any such increase, the Trustee shall also be
entitled to charge thereafter an additional fee at a rate or amount to be
determined by the Trustee and the Sponsor based upon the face amount of
Deposited Units in a Trust, for the Trustee's services in maintaining such
Deposited Units. The approval of Unit holders shall not be required for
charging of such additional fee.
Other Charges--The following additional charges are or may be incurred
by a State Trust and Umbrella Series: all expenses of the Trustee (including
fees and expenses of counsel and auditors) incurred in connection with its
activities under the Trust Agreement, including reports and communications to
Unit holders; expenses and costs of any action undertaken by the Trustee to
protect the Multistate Trust or Umbrella Series and the rights and interests
of the Unit holders; fees of the Trustee for any extraordinary services
performed under the Trust Agreement; indemnification of the Trustee for any
loss or liability accruing to it without gross negligence, bad faith or
willful misconduct on its part, arising out of or in connection with its
acceptance or administration of a State Trust and Umbrella Series; in the case
of certain trusts, to the extent lawful, expenses (including legal, accounting
and printing expenses) of maintaining registration or qualification of the
Units and/or a State Trust and Umbrella Series under Federal or state
securities laws subsequent to initial registration so long as the Sponsor are
maintaining a market for the Units; and all taxes and other governmental
charges imposed upon the Bonds or any part of a State Trust and Umbrella
Series (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 such State
Trust and Umbrella Series. In addition, the Trustee is empowered to sell
Bonds in order to make funds available to pay all expenses.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units of the respective State Trust
and Umbrella Series is determined by adding to the Evaluator's determination
of the aggregate bid price of the Bonds per Unit a sales charge equal to the
percentage of the Public Offering Price indicated for the Trust in Part A,
"Summary of Essential Information". The aggregate bid price of the underlying
Bonds may be expected to be less than the aggregate offering price of the
Bonds. (See "Method of Evaluation".) A proportionate share of accrued and
undistributed interest on the Bonds in a State Trust and Umbrella Series at
the date of delivery of the Units of such State Trust and Umbrella Series to
the purchaser is also added to the Public Offering Price.
Units of a State Trust and Umbrella Series are available to employees of
certain of the Sponsor, pursuant to employee benefit plans, at a Public
Offering Price equal to the Evaluator's determination of the aggregate bid
price of Bonds of a State Trust and Umbrella Series per Unit plus a sales
charge of 1.25% of the Public Offering Price. Sales through such plans to
employees of the Sponsor require less selling effort and selling expenses than
sales to the general public.
Method of Evaluation
The aggregate bid price of the Bonds (which is used to calculate the
price at which the Sponsor repurchase and sell Units in the secondary market
and the Redemption Price at which Units may be redeemed) will be determined by
the Evaluator (1) on the basis of the current bid prices for the Bonds* , (2)
if bid prices are not available for any Bonds, on the basis of current bid
prices of comparable securities, (3) by appraisal, or (4) by any combination
of the above. Such determinations will be made each business day as of the
Evaluation Time set forth in the "Summary of Essential Information" of Part A,
effective for all sales made subsequent to the last preceding determination.
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 1.5 % of principal amount. In the case of actively traded
securities, the difference may be as little as 0.5 of 1%, and in the case of
inactively traded securities, such difference will usually not exceed 3%. The
price at which Units may be repurchased by the Sponsor in the secondary market
could be less than the price paid by the Unit holder. For information
relating to the calculation of the Redemption Price per Unit, which is also
based on the aggregate bid price of the underlying Bonds and which may be
expected to be less than the Public Offering Price per unit, see "Rights of
Unit Holders--Redemption of Units".
Distribution of Units
Units acquired in the secondary market (see "Public Offering--Market for
Units") may be offered by this Prospectus at the Public Offering Price
determined in the manner provided above (see "Public Offering--Offering
Price"). The Sponsor will allow a discount on Units sold to members of the
National Association of Securities Dealers, Inc. Such discount is subject to
change from time to time.
Sales will be made only with respect to whole Units, and the Sponsor
reserve the right to reject, in whole or in part, any order for the purchase
of Units. A purchaser does not become a Unit holder (Certificate holder) or
become entitled to exercise the rights of a Unit 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 Unit holder is the Public Offering
Price in effect at the time his order is received, plus accrued interest (see
"Public Offering--Method of Evaluation"). This price may be different from
the Public Offering Price in effect on any other day, including the day on
which the Unit holder pays for the Units.
Market for Units
Although not obligated to do so, the Sponsor presently intend to
maintain a market for the Units of the respective State Trust and Umbrella
Series and to continuously offer to purchase such Units at prices based upon
the aggregate bid price of the underlying Bonds which may be less than the
price paid by the Unit holder. For information relating to the method and
frequency of the Evaluator's determination of the aggregate bid price of the
underlying Bonds, see "Public Offering--Method of Evaluation". The costs of
maintaining the secondary market, such as printing, legal and accounting, will
be borne by the Sponsor except as otherwise provided in the Trust Agreement.
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 any of the respective State
Trusts of the Multistate Trust or Umbrella Series exceeds demand, or for any
other reason. In this event the Sponsor may nonetheless purchase Units, as a
service to Unit holders, at prices based on the current Redemption Price of
those Units. In the event that a market is not maintained for the Units of
any of the State Trust and Umbrella Series, a Unit holder of such State Trust
and Umbrella Series desiring to dispose of his Units may be able to do so only
by tendering such Units to the Trustee for redemption at the Redemption Price,
which is also based upon the aggregate bid price of the underlying Bonds.
(See "Rights of Unit Holders--Redemption of Units".)
Exchange Option
Unit holders may elect to exchange any or all of their Units of this
series for units of one or more of any series of Tax Exempt Securities Trust
(the "Exchange Trust") available for sale in the state in which the Unit
holder resides at a Public Offering Price for the units of the Exchange Trust
to be acquired based on a fixed sales charge of $25 per unit. The Sponsor
reserve the right to modify, suspend or terminate this plan at any time
without further notice to Unit holders. Therefore, there is no assurance that
a market for units will in fact exist on any given date on which a Unit holder
wishes to sell his Units of this series and thus there is no assurance that
the Exchange Option will be available to a Unit holder. Exchanges will be
effected in whole units only. Any excess proceeds from Unit holders' Units
being surrendered will be returned and Unit holders will not be permitted to
advance any new money in order to complete an exchange.
An exchange of Units pursuant to the Exchange Option for units of an
Exchange Trust will generally constitute a "taxable event" under the Code,
i.e., a Holder will recognize a gain or loss at the time of exchange.
However, an exchange of Units of this Trust for units of any other similar
series of the Tax Exempt Securities Trust which are grantor trusts for U.S.
federal income tax purposes will not constitute a taxable event to the extent
that the underlying securities in each trust do not differ materially either
in kind or in extent. Unit holders are urged to consult their own tax
advisors as to the tax consequences to them of exchanging Units in particular
cases.
Units of the Exchange Trust will be sold under the Exchange Option at
the bid prices of the underlying securities in the particular portfolio
involved per unit plus a fixed charge of $25 per unit. As an example, assume
that a Unit holder, who has three units of a trust with a current price of
$1,020 per unit based on the bid prices of the underlying securities, desires
to exchange his Units for units of a series of an Exchange Trust with a
current price of $880 per unit based on the bid prices of the underlying
securities. In this example, the proceeds from the Unit holder's units will
aggregate $3,060. Since only whole units of an Exchange Trust may be
purchased under the Exchange Option, the Unit 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). The remaining $345 would be returned to
the Unit holder in cash.
Reinvestment Programs
Distributions of interest and principal, if any, are made to Unit
holders monthly. The Unit holder will have the option of either receiving his
monthly income check from the Trustee or participating in one of the
reinvestment programs offered by certain of the Sponsor provided such unit
holder meets the minimum qualifications of the reinvestment program and such
program lawfully qualifies for sale in the jurisdiction in which the Unit
holder resides. Upon enrollment in a reinvestment program, the Trustee will
direct monthly interest distributions and principal distributions, if any, to
the reinvestment program selected by the Unit holder. Since each Sponsor has
arranged for different reinvestment alternatives, Unit holders should contact
the Sponsor for more complete information, including charges and expenses.
The appropriate prospectus will be sent to the Unit holder. The Unit 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 State Trust and Umbrella Series owned by a Unit holder and
may be terminated at any time by the Unit holder, or the program may be
modified or terminated by the Trustee or the program's Sponsor.
Sponsor's Profits
For their services the Sponsor receives a gross commission equal to a
percentage of the Public Offering Price of the Units. In maintaining a market
for the Units of the respective State Trust and Umbrella Series (see "Public
Offering--Market for Units"), the Sponsor also realizes 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 (see
"Public Offering--Offering Price").
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units of the respective State Trust and Umbrella Series is
evidenced by registered certificates executed by the Trustee and the Sponsor.
A Certificate is transferable by presentation and surrender of the Certificate
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 Unit 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
Unit 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 each State Trust and Umbrella Series
will be distributed on each Monthly Distribution Date on a pro rata basis to
Unit holders in such State Trust and Umbrella Series of record 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 Unit holders
on previous Monthly Distribution Dates. (See Part A, "Summary of Essential
Information" and "Tax Exempt Securities Trust--Expenses and Charges" and
"Rights of Unit Holders--Redemption of Units" in this Section.)
The Trustee will credit to the Interest Account of each respective State
Trust and Umbrella Series all interest received by such State Trust and
Umbrella Series, including that part of the proceeds of any disposition of
Bonds of such State Trust and Umbrella Series which represents accrued
interest. Other receipts will be credited to the Principal Account of the
affected State Trust and Umbrella Series. 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. (See Part A, "Summary of Essential Information".) 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 Unit holders as of each Record Date will be made on
the following Distribution Date or shortly thereafter, and 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 Interest Distribution") plus such holders' pro rata
share of the cash balance in the Principal Account computed as of the close of
business on the preceding Record Date. Persons who purchase Units between a
Record Date and a Distribution Date will receive their first distribution on
the second Distribution Date following their purchase of Units. No
distribution need be made from the Principal Account if the balance therein is
less than an amount sufficient to distribute $1.00 per Unit. The Monthly
Interest Distribution per Unit as of the date shown in the "Summary of
Essential Information" in Part A for the particular State Trust and Umbrella
Series will change as the income and expenses of the respective State Trust
and Umbrella Series change and as Bonds are exchanged, redeemed, paid or sold.
Normally, interest on the Bonds in the Portfolio of each State Trust and
Umbrella Series is paid on a semi-annual basis. Because Bond interest is not
received by the State Trust and Umbrella Series at a constant rate throughout
the year, any Monthly Interest Distribution may be more or less than the
amount credit to the Interest Account as of the Record Date. In order to
eliminate fluctuations in Monthly Interest Distributions resulting from such
variances, the Trustee is required by the Trust Agreement to advance such
amounts as may be necessary to provide Monthly Interest Distributions of
approximately equal amounts. The Trustee will be reimbursed, without
interest, for any such advances from funds available from the Interest Account
on the next ensuing Record Date or Record Dates, as the case may be. 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 advances made by it in
anticipation of receipt of interest payments on such Bonds 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, but prior to
receipt by the Trustee of actual notice of such failure to pay interest, the
amount of which was so advanced by the Trustee, each remaining Unit holder
will be subject to a greater pro rate reduction in his Monthly Interest
Distribution than would have occurred absent such redemptions. Funds which
are available for future distributions, payments of expenses and redemptions
are in accounts which are non-interest bearing to Unit holders and are
available for use by The Chase Manhattan Bank (National Association), pursuant
to normal banking procedures. The Trustee is entitled to the benefit of
holding any reasonable cash balances in the Interest and Principal Accounts.
The Trustee anticipates that the average cash balance in the Interest Account
will be approximately 2% in excess of the amounts anticipated to be required
for Monthly Distributions to Unit holders. In addition, because of the
varying interest payment dates of the Bonds comprising each State Trust and
Umbrella Series portfolio, accrued interest at any point in time will be
greater than the amount of interest actually received by a particular State
Trust and Umbrella Series and distributed to Unit holders. The excess accrued
but undistributed interest amount is known as the accrued interest carryover.
If a Unit holder sells or redeems all or a portion of his Units, a portion of
his sale proceeds will be allocable to his proportionate share of the accrued
interest carryover. Similarly, if a Unit holder redeems all or a portion of
his Units, the Redemption Price per Unit which he is entitled to receive from
the Trustee will include his accrued interest carryover on the Bonds. It
should be noted that any Series formed later Series 384 (including Series 384)
that accrued interest carryover no longer is implemented. (See "Rights of Unit
Holders--Redemption of Units--Computation of Redemption Price Per Unit.")
As of the first day of each month the Trustee will deduct from the
Interest Account of each State Trust and Umbrella Series and, to the extent
funds are not sufficient therein, from the Principal Account of such State
Trust and Umbrella Series, amounts necessary to pay the expenses of such State
Trust and Umbrella Series. (See "Tax Exempt Securities Trust--Expenses and
Charges".) The Trustee also may withdraw from said accounts such amounts, if
any, as it deems necessary to establish a reserve for any governmental charges
payable out of a State Trust and Umbrella Series. Amounts so withdrawn shall
not be considered a part of a State Trust and Umbrella Series' assets until
such time as the Trustee shall return all or 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. (See "Rights of Unit Holders--Redemption
of Units".) The Trustee is also entitled to withdraw from the Interest
Account, and, to the extent funds are not sufficient therein, from the
Principal Account, on one or more Record Dates as may be appropriate, amounts
sufficient to recoup advances which the Trustee has made in anticipation of
the receipt by a Trust of interest in respect of Bonds which subsequently fail
to pay interest when due.
Reports and Records
The Trustee shall furnish Unit holders in connection with each
distribution a statement of the amount of interest, if any, and the amount of
other receipts, if any, 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 that 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 Bonds, 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, to the extent then determined, 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 Unit holder of
record, a statement (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Bonds), deductions for payment of applicable taxes and for fees and expenses
of a State Trust and Umbrella Series, 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 State Trust
and Umbrella Series, 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, separately stated, expressed both as total dollar amounts and as
dollar amounts representing the pro rata share of each Unit outstanding. The
accounts of such State Trust and Umbrella Series will 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 Unit
holders upon request.
The Trustee shall keep available for inspection by Unit 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
Unit holders, certificates issued or held, a current list of Bonds in the
Portfolio of a State Trust and Umbrella Series 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 770 Broadway, New York, New York 10003, 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. Unit 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 Unit holder will
be entitled to receive in cash an amount for each Unit tendered equal to the
Redemption Price per Unit computed as of the Evaluation Time set forth in the
"Summary of Essential Information" in Part A on the date of tender. (See
"Redemption of Units--Computation of Redemption Price per Unit".) The "date
of tender" is deemed to be the date on which Units are received by the
Trustee, except that 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, and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the Redemption Price
computed on that day. For information relating to the purchase by the Sponsor
of Units tendered to the Trustee for redemption at prices which may be, in
certain circumstances in excess of the Redemption Price, see "Redemption of
Units--Purchase by the Sponsor of Units Tendered for Redemption."
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, if required, 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 State Trust and Umbrella Series 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, other than weekend and
holiday closings, 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 State Trust and Umbrella Series is determined by the Trustee on the basis
of the bid prices of the Bonds in such State Trust and Umbrella Series as of
the Evaluation Time on the date any such determination is made. The
Redemption Price per Unit of a State Trust and Umbrella Series is each Unit's
pro rata share, determined by the Trustee, of: (1) the aggregate value of the
Bonds in such State Trust and Umbrella Series on the bid side of the market
(determined by the Evaluator as set forth under "Public Offering--Method of
Evaluation"), (2) cash on hand in such State Trust and Umbrella Series, 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
State Trust and Umbrella Series, (b) the accrued expenses of such State Trust
and Umbrella Series, and (c) cash held for distribution to Unit holders of
such State Trust and Umbrella Series of record as of a date prior to the
evaluation. The Evaluator may determine the value of the Bonds in the Trust
(i) on the basis of current bid prices for the Bonds, (ii) if bid prices are
not available for any Bonds, on the basis of current bid prices for comparable
securities, (iii) by appraisal, or (iv) by any combination of the above.
The difference between the bid and offering prices of the Bonds may be
expected to average approximately 1.5% of the principal amount. In the case of
actively traded securities, the difference may be as little as 0.5 of 1.0%,
and in the case of inactively traded securities such difference usually will
not exceed 3.0%. The price at which Units may be redeemed could be less than
the price paid by the Unit holder. 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 Part A, "Summary of
Essential Information".
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 are maintaining 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 for redemption
at the price so bid by making payment therefor to the Unit holder in an amount
not less than the Redemption Price not later than the day on which the Units
would otherwise have been redeemed by the Trustee. (See "Public Offering--
Market for Units".) Units held by the Sponsor may be tendered to the Trustee
for redemption as any other Units, provided that the Sponsor shall not receive
for Units purchased as set forth above a higher price than they paid, plus
accrued interest.
The offering price of any Units resold by the Sponsor will be the Public
Offering Price determined in the manner provided in this Prospectus. (See
"Public Offering--Offering Price".) Any profit resulting from the resale of
such Units will belong to the Sponsor which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such Units. (See "Public Offering--Sponsor's Profits".)
SPONSOR
Smith Barney Inc. 388 Greenwich Street, New York, New York 10013 ("Smith
Barney"), was incorporated in Delaware in 1960 and traces its history through
predecessor partnerships to 1873. Smith Barney, an investment banking and
securities broker-dealer firm, is a member of the New York Stock Exchange,
Inc. and other major securities and commodities exchanges, the National
Association of Securities Dealers, Inc. and the Securities Industry
Association. Smith Barney is an indirect wholly-owned subsidiary of Travelers
Group Inc.
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. Smith Barney also sponsors all
Series of Corporate Securities Trust, Government Securities Trust and Harris,
Upham Tax-Exempt Fund and acts as co-sponsor of certain trusts of The Equity
Income Fund, Concept Series. The Sponsor has acted previously as managing
underwriter of other investment companies. In addition to participating as a
member of various underwriting and selling groups or as agent of other
investment companies, the Sponsor also executes orders for the purchase and
sale of securities of investment companies and sell securities to such
companies in its capacities as broker or dealer in securities.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising
from their responsibilities under the Trust Agreement, but will be under no
liability to Unit holders for taking any action or refraining from any action
in good faith or for errors in judgment or 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. (See "Tax Exempt Securities Trust--
Portfolio" and "Sponsor--Responsibility".)
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 or deposited Units of
other trusts when certain events occur that adversely affect the value of the
Bonds, including 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 Unit holders.
The Sponsor intends to provide portfolio services for each State Trust
and Umbrella Series 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, except that 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 Unit holder,
identifying the Bonds eliminated and the Bonds substituted therefor. Except
as stated in this paragraph, the acquisition by a Multistate Trust or Umbrella
Series of any securities other than the Bonds initially deposited in that
particular State Trust is prohibited.
Resignation
If Sponsor resigns or otherwise fails 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 affected State Trusts.
TRUSTEE
The Trustee is The Chase Manhattan Bank (National Association), a
national banking association with its principal executive office located at 1
Chase Manhattan Plaza, New York, New York 10081 and its unit investment trust
office at 770 Broadway, New York, New York 10003. The Trustee is subject to
supervision and examination by the Superintendent of Banks of the State of New
York, the Federal Deposit Insurance Corporation and the Board of Governors of
the Federal Reserve System. In connection with the storage and handling of
certain Bonds deposited in any of the State Trust and Umbrella Series, 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 any State Trust and Umbrella Series which the Trustee may be
required to pay under current or future law of the United States or any other
taxing authority having jurisdiction. (See "Tax Exempt Securities
Trust--Portfolio".) For information relating to the responsibilities and
indemnification of the Trustee under the Trust Agreement, reference is made to
the material set forth under "Rights of Unit Holders", "Sponsor--Resignation"
and "Other Charges".
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, Inc., a division of J.J.
Kenny Co., Inc. with main offices located at 65 Broadway, New York, New York
10006.
Limitations on Liability
The Trustee, Sponsor and Unit holders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. Determinations 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 Unit 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
State Trust and Umbrella Series 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 State Trust and Umbrella Series is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsor. For information relating to the responsibility of the Evaluator to
evaluate the Bonds on the basis of their bid prices see "Public Offering--
Offering Price."
Resignation
The Evaluator may resign or may be removed by the joint action of the
Sponsor and the Trustee, and in such event, the Sponsor and the Trustee are to
use their best efforts to appoint a satisfactory successor. Such resignation
or removal shall become effective upon the acceptance of appointment by a
successor evaluator. If upon resignation of the Evaluator no successor has
accepted appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the appointment
of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
Amendment
The Sponsor and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit 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 Unit holders; provided, that the Trust Agreement
is not amended to increase the number of Units issuable thereunder or to
permit the deposit or acquisition of securities either in addition to or in
substitution for any of the Bonds initially deposited in the respective State
Trust and Umbrella Series, except for the substitution of certain refunding
securities for such Bonds or to permit the Trustee to engage in business or
investment activities not specifically authorized in the Trust Agreement as
originally adopted. In the event of any amendment, the Trustee is obligated
to notify promptly all Unit holders of the substance of such amendment.
Termination
The Trust Agreement provides that if the principal amount of Bonds is
less than 50% of the principal amount of the Bonds originally deposited in
such State Trust and Umbrella Series, the Trustee may in its discretion and
will, when directed by the Sponsor, terminate such State Trust and Umbrella
Series. Each State Trust and Umbrella Series may be terminated at any time by
100% of the Unit holders. See Part A for additional optional and mandatory
termination provisions. However, in no event may any State Trust and Umbrella
Series continue beyond the Mandatory Termination Date set forth under Part A
"Summary of Essential Information." In the event of termination, written
notice thereof will be sent by the Trustee to all Unit holders. Within a
reasonable period after termination, the Trustee will sell any Bonds remaining
in the affected State Trust and Umbrella Series, and, after paying all
expenses and charges incurred by such State Trust and Umbrella Series, will
distribute to each Unit holder, upon surrender for cancellation of his
certificate for Units, his pro rata share of the balances remaining in the
Interest Account and Principal Account of such State Trust and Umbrella
Series.
LEGAL OPINIONS
Certain legal matters in connection with the Units offered hereby have
been passed upon by Battle Fowler LLP, 75 East 55th Street, New York, New York
10022, as special counsel for the Sponsor.
AUDITORS
The Statements of Financial Condition and Portfolios of Securities of
each State Trust and/or Umbrella Series included in this Prospectus have been
audited by KPMG Peat Marwick 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.
BOND RATINGS*
All ratings except those identified otherwise are by Standard & Poor's.
Standard & Poor's
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
A summary of the meaning of the applicable ratings symbols as published
by Standard & Poor's follows:
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 affects
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.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC, and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "CCC" 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 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 Investors Service
A brief description of the applicable Moody's Investors Service's rating
symbols and their meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. Aa bonds are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuations
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.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca--Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Note: Those municipal bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols Aa1, A1, Baa1, Ba1, and B1, respectively. In addition, Moody's
applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category. Although industrial Revenue Bonds and Environmental Control
Revenue Bonds are tax-exempt issues, they are included in the corporate bond
rating system.
Conditional ratings, indicated by "Con" are given to bonds for which the
security depends upon the completion of some act or the fulfillment of some
condition. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating experience, (c)
rentals which begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. A parenthetical rating denotes
probable credit stature upon completion of construction or elimination of
basis of condition.
Fitch Investors Service, Inc.
A brief description of the applicable Fitch Investors Service, Inc.
rating symbols and their meanings is as follows:
AAA--Bonds which are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA--Bonds which are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong although not quite as strong as bonds rated AAA.
A--Bonds which are considered to be investment grade and of high credit
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-Bonds which are considered to be investment grade and of
satisfactory credit 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 have adverse impact
on these bonds, and therefore impair timely payment. The likelihood that
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the 'AAA', 'DDD', 'DD' or 'D'
categories.
Conditional--A conditional rating is promised on the successful
completion of a project of the occurrence of a specific event.
NOTE: NR indicates, among other things, that no rating has been
requested, that there is insufficient information on which to base a rating,
or that Standard & Poor's Corporation, Moody's Investors Service and Fitch
Investors Service, Inc. do not rate a particular type of obligation as a
matter of policy. Subsequent to the Date of Deposit, the credit
characteristics of the Issuers of Securities may have changed. Currently,
certain of the Securities in the Portfolio of a Trust may be unrated and have
credit characteristics comparable to securities rated below the minimum
requirements of such Trust for acquisition of a Security. See Part A--
"Portfolio of Securities" herein to ascertain the ratings on the Securities,
if any, on the date of the Portfolios of Securities.
Duff & Phelps Credit Rating Co.
A brief description of the applicable Duff & Phelps Credit Rating Co. rating
symbols and their meanings is as follows:
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.
BBB-Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
NR- Not rated (credit characteristics comparable to A or better on the
Date of Deposit).
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol
to indicate the relative position of a credit within the rating category.
* Obligations underlying such Deposited Units.
As described by the rating agencies.
<PAGE>
<TABLE>
Prospectus
This Prospectus contains information concerning the Trust and
the Sponsors, but does not contain all the information set forth
in the registration statements and exhibits relating thereto, which
the Trust has filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Act of 1933 and the
Investment Company Act of 1940, and to which reference is
hereby made.
<S>
<C>
Index:
Page
Summary of Essential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . A-
2
Series 256
Financial and Statistical Information. . . . . . . . . . . . . . . . . . . . . . . . . A-3
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4
Statements of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . A-5
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-
5
13,188 Units
Portfolio of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-6
Tax Exempt Securities Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PROSPECTUS
The Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dated March 1, 1996
Estimated Current Return and Estimated Long-Term Return. . . . . . . . . . . . . . . 16
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Expenses and Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Public Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Offering Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Sponsor
Method of Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Distribution of Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Market for Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SMITH BARNEY INC.
Exchange Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Reinvestment Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
388 Greenwich Street
Sponsor's Profits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
New York, New York 10013
Rights of Unit Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(800) 298-UNIT
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Distribution of Interest and Principal . . . . . . . . . . . . . . . . . . . . . . . 23
Reports and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Redemption of Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Sponsor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Evaluator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Limitations on Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Amendment and Termination of the Trust Agreement . . . . . . . . . . . . . . . . . . . 29
Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Bond Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Standard & Poor's Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Moody's Investors Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Fitch Investors Service, Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, securities in any state to any person to whom it is
not lawful to make such offer in such state.
</TABLE>
<PAGE> PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement
on Form S-6 comprises the following papers and documents:
The facing Sheet on Form S-6.
The cross-reference sheet.
The Prospectus consisting of pages A-1 - A- , and 1- , back cover.
Signatures.
Written consents of the following persons:
KPMG Peat Marwick
Kenny S&P Evaluation Services,
a division of Kenny Information Systems, Inc.
(included in Exhibit 4.6A)
The following exhibits:
*4.6A - Consent of Kenny S&P Evaluation Services, a division
of Kenny Information Systems, Inc. as Evaluator.
* Filed herewith.
II-1
<PAGE>
KENNY S&P EVALUATION SERVICES
A Division of Kenny Information Systems, Inc.
65 Broadway
New York, New York, 10006-2511
Telephone 212/770-4000
Smith Barney Incorporated
388 Greenwich Street
New York, NY 10013
RE:Tax Exempt Securities Trust
Series 256
Gentlemen:
We have examined the post-effective Amendment to the
Registration Statement File No. 33-9698 for the above-captioned
trust. We hereby acknowledge that Kenny S&P Evaluation Services,
a division of Kenny Information Systems, Inc. is currently acting
as the evaluator for the trust. We hereby consent to the use in
the Amendment of the reference to Kenny S&P Evaluation Services,
a division of Kenny Information Systems, Inc. as evaluator.
In addition, we hereby confirm that the ratings
indicated in the above-referenced Amendment to the Registration
Statement for the respective bonds comprising the trust portfolio
are the ratings currently indicated in our KENNYBASE database.
You are hereby authorized to file a copy of this letter
with the Securities and Exchange Commission.
Sincerely,
John R. Fitzgerald
Vice President
tru:l-31
<PAGE>
CONSENT OF COUNSEL
The consent of counsel to
the use of their name in the Prospectus included in this Post-
Effective Amendment to the Registration Statement ("Post-
Effective Amendment") is contained in their opinion filed as
Exhibit 3.1 to the Registration Statement.
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of
our report dated February 2, 1996 included herein and to the
reference to our firm under the heading "AUDITORS" in the
prospectus.
KPMG PEAT MARWICK
New York, New York
February 16, 1996
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant, Tax Exempt Securities Trust, Series 256,
certifies that it meets all the requirements for
effectiveness of this Post-Effective Amendment pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment 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 2nd day of February, 1996.
Signatures appear on pages II-3.
A majority of the members of the Board of Directors of Smith
Barney Inc. have signed this Post-Effective Amendment
pursuant to Powers of Attorney authorizing the person signing
this Post-Effective Amendment to do so on behalf of such members.
These Powers of Attorney were filed with the Securities
and Exchange Commission under the Securities Act of 1933 with the
Registration Statement of Tax Exempt Securities Trust,
Appreciation Series 7, Registration No. 2-78499 and with the
Registration Statement of Tax Exempt Securities Trust, Series
110, Intermediate Term Series 15 and Short-Intermediate Term
Series 13, Registration Nos. 2-97179, 2-95591 and 2-96184,
respectively, with the Registration Statement of Tax Exempt
Securities Trust, Series 284, Amendment No. 2, Registration No.
33-22777, with the Registration Statement of Tax Exempt
Securities Trust, Series 295, Amendment No. 1, Registration No.
33-26376, and with the Registration Statement of Tax Exempt
Securities Trust, Series 335, Amendment No. 1, Registration No.
33-37952.
<PAGE>
TAX EXEMPT SECURITIES TRUST
BY SMITH BARNEY INC.
By
(George S. Michinard, Jr.)
By the following persons,* who constitute a majority of
the directors of Smith Barney Inc. :
Steven D. Black
James S. Boshart III
Robert A. Case
James Dimon
Robert Druskin
Robert F. Greenhill
Jeffrey B. Lane
Robert H. Lessin
William J. Mills, II
Michael B. Panitch
Jack L. Rivkin
Paul Underwood
By
(George S. Michinard, Jr.
Attorney-in-Fact)
* Pursuant to Powers of Attorney previously filed.
II-3
