MUNICIPAL SECURITIES TRUST MULTI STATE SERIES 37, 485BPOS, 1994-04-19

MUNICIPAL SECURITIES TRUST MULTI STATE SERIES 37
485BPOS, 1994-04-19

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As filed with the Securities and Exchange Commission on April 19, 1994

Registration No. 33-29202

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 5

To
FORM S-6

FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2

A. Exact name of trust:

MUNICIPAL SECURITIES TRUST, MULTI-STATE SERIES 37

B. Name of depositors: BEAR, STEARNS & CO. INC.
GRUNTAL & CO., INCORPORATED

C. Complete address of depositors' principal executive offices:

BEAR, STEARNS & CO. INC. GRUNTAL & CO., INCORPORATED
245 Park Avenue 14 Wall Street
New York, NY 10167 New York, NY 10005

D. Name and complete address of agent for service:

PETER J. DeMARCO ROBERT SABLOWSKY
Managing Director Executive Vice-President
Bear, Stearns & Co. Inc. Gruntal & Co., Incorporated
245 Park Avenue 14 Wall Street
New York, NY 10167 New York, NY 10005

Copy of comments to:
MICHAEL R. ROSELLA, ESQ.
Battle Fowler
280 Park Avenue
New York, NY 10017
(212) 856-6858

It is proposed that this filing become effective (check appropriate box)

/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/ x / on April 29, 1994 pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485

<PAGE>

MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 37

CROSS-REFERENCE SHEET

Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933

(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)

Form N-8B-2 Form S-6
Item Number Heading in Prospectus

I. Organization and General Information

1. (a) Name of trust................... Front Cover of Prospectus
(b) Title of securities issued...... "
2. Name and address of each depositor.. The Sponsors
3. Name and address of trustee......... The Trustee
4. Name and address of principal
underwriters...................... The Sponsors
5. State of organization of trust...... Organization
6. Execution and termination of
trust agreement................... Trust Agreement, Amendment and
Termination
7. Changes of name..................... Not Applicable
8. Fiscal year......................... "
9. Litigation.......................... None

II. General Description of the Trust and Securities of the Trust

10. (a) Registered or bearer
securities...................... Certificates
(b) Cumulative or distributive
securities...................... Interest and Principal
Distributions
(c) Redemption...................... Trustee Redemption
(d) Conversion, transfer, etc....... Certificates, Sponsors
Repurchase,
Trustee Redemption, Exchange
Privilege and Conversion Offer
(e) Periodic payment plan........... Not Applicable
(f) Voting rights................... Trust Agreement, Amendment and
Termination
(g) Notice to certificateholders.... Records, Portfolio, Trust
Agreement,
Amendment and Termination, The
Sponsors, The Trustee
(h) Consents required............... Trust Agreement, Amendment and
Termination
(i) Other provisions................ Tax Status
11. Type of securities
comprising units.................. Objectives, Portfolio,
Description
of Portfolio
12. Certain information regarding
periodic payment certificates..... Not Applicable
13. (a) Load, fees, expenses, etc....... Summary of Essential
Information,
Offering Price, Volume and
Other
Discounts, Sponsors' and
Underwriters' Profits, Total
Reinvestment Plan, Trust
Expenses
and Charges
(b) Certain information regarding
periodic payment certificates... Not Applicable
(c) Certain percentages............. Summary of Essential
Information,
Offering Price, Total
Reinvestment
Plan
(d) Price differences............... Volume and Other Discounts
(e) Other loads, fees, expenses..... Certificates
(f) Certain profits receivable
by depositors, principal
underwriters, trustee or
affiliated persons.............. Sponsors' and Underwriters'
Profits
(g) Ratio of annual charges
to income....................... Not Applicable
14. Issuance of trust's securities...... Organization, Certificates
15. Receipt and handling of payments
from purchasers................... Organization
16. Acquisition and disposition of
underlying securities............. Organization, Objectives,
Portfolio,
Portfolio Supervision
17. Withdrawal or redemption............ Comparison of Public Offering
Price,
Sponsors' Repurchase Price and
Redemption Price, Sponsors
Repurchase, Trustee Redemption
18. (a) Receipt, custody and
disposition of income........... Distribution Elections, Interest
and
Principal Distributions,
Records,
Total Reinvestment Plan
(b) Reinvestment of distributions... Total Reinvestment Plan
(c) Reserves or special funds....... Interest and Principal
Distributions
(d) Schedule of distributions....... Not Applicable
19. Records, accounts and reports....... Records, Total Reinvestment Plan
20. Certain miscellaneous provisions
of trust agreement................ Trust Agreement, Amendment and
Termination
(a) Amendment....................... "
(b) Termination..................... "
(c) and (d) Trustee, removal and
successor....................... The Trustee
(e) and (f) Depositor, removal
and successor................... The Sponsors
21. Loans to security holders........... Not Applicable
22. Limitations on liability............ The Sponsors, The Trustee,
The Evaluator
23. Bonding arrangements................ Part II--Item A
24. Other material provisions
of trust agreement................ Not Applicable

III. Organization, Personnel and Affiliated Persons of Depositor

25. Organization of depositor........... The Sponsors
26. Fees received by depositor.......... Not Applicable
27. Business of depositor............... The Sponsors
28. Certain information as to
officials and affiliated
persons of depositor.............. Part II--Item C
29. Voting securities of depositor...... Not Applicable
30. Persons controlling depositor....... "
31. Payments by depositor for certain
services rendered to trust........ "
32. Payment by depositor for certain
other services rendered to trust.. "
33. Remuneration of employees of
depositor for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "

IV. Distribution and Redemption of Securities

35. Distribution of trust's
securities by states.............. Distribution of Units
36. Suspension of sales of
trust's securities................ Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a) Method of distribution.......... Distribution of Units, Total
Reinvestment Plan
(b) Underwriting agreements......... "
(c) Selling agreements.............. "
39. (a) Organization of principal
underwriters.................... The Sponsors
(b) N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............ Not Applicable
41. (a) Business of principal
underwriters.................... The Sponsors
(b) Branch offices of principal
underwriters.................... Not Applicable
(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............. Summary of Essential
Information,
Offering Price, Accrued
Interest,
Volume and Other Discounts,
Total Reinvestment Plan,
Distribution of Units
(b) Schedule as to offering price... Not Applicable
(c) Variation in offering price
to certain persons.............. Distribution of Units, Total
Reinvestment Plan, Volume and
Other Discounts
45. Suspension of redemption rights..... Trustee Redemption

46. (a) Redemption valuation............ Comparison of Public Offering
Price,
Sponsors' Repurchase Price and
Redemption Price, Trustee
Redemption
(b) Schedule as to
redemption price................ Not Applicable
47. Maintenance of position in
underlying securities............. Comparison of Public Offering
Price,
Sponsors' Repurchase Price and
Redemption Price, Sponsors
Repurchase, Trustee Redemption

V. Information Concerning the Trustee or Custodian

48. Organization and regulation
of trustee........................ The Trustee
49. Fees and expenses of trustee........ Trust Expenses and Charges
50. Trustee's lien...................... "

VI. Information Concerning Insurance of Holders of Securities

51. Insurance of holders of
trust's securities................ Not Applicable

VII. Policy of Registrant

52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities...................... Objectives, Portfolio, Portfolio
Supervision
(b) Transactions involving
elimination of underlying
securities...................... Not Applicable
(c) Policy regarding substitution
or elimination of underlying
securities...................... Objectives, Portfolio, Portfolio
Supervision, Substitution of
Bonds
(d) Fundamental policy not
otherwise covered............... Not Applicable
53. Tax status of trust................. Tax Status

VIII. Financial and Statistical Information

54. Trust's securities during
last ten years.................... Not Applicable
55. Hypothetical account for issuers
of periodic payment plans......... "
56. Certain information regarding
periodic payment certificates..... "
57. Certain information regarding
periodic payment plans............ "
58. Certain other information
regarding periodic payment plans.. "
59. Financial Statements
(Instruction 1(c) to Form S-6)...... Statement of Financial Condition
<PAGE>

Note: Part A of This Prospectus May Not Be
Distributed Unless Accompanied by Part B.

MUNICIPAL SECURITIES TRUST

MULTI-STATE SERIES 37
(MULTIPLIER PORTFOLIO)

The Trust consists of 3 separate unit investment trusts
designated California Trust, New York Trust and Pennsylvania Trust (the
"State Trusts"). Each State Trust contains an underlying portfolio of
long-term tax-exempt bonds issued by or on behalf of states,
municipalities and public authorities and was formed to preserve capital
and to provide interest income (including, where applicable, earned
original issue discount) which, in the opinions of bond counsel to the
respective issuers, is, with certain exceptions, currently exempt from
regular Federal income tax (including where applicable earned original
discount) under existing law. In addition, in the opinion of counsel to
the Sponsor, the interest income of each State Trust is exempt, to the
extent indicated, from state and local taxes when held by residents of the
state where the issuers of bonds in such State Trust are located. Such
interest income may, however, be a specific preference item for purposes
of Federal individual and/or corporate alternative minimum tax. Investors
may recognize taxable capital gain on ordinary income, to the extent of
accrued market discount, upon maturity or earlier redemption of the bonds.
(See "Tax Status" and "The Portfolios--General.") The Sponsors are Bear,
Stearns & Co. Inc. and Gruntal & Co., Incorporated (sometimes referred to
as the "Sponsor" or the "Sponsors"). The value of the Units of the Trust
will fluctuate with the value of the underlying bonds. Minimum purchase:
1 Unit.

This Prospectus consists of two parts. Part A contains the
Summary of Essential Information including descriptive material relating
to each State Trust as of December 31, 1993 (the "Evaluation Date"), a
summary of certain specific information regarding each State trust and
audited financial statements of each State Trust, including the related
portfolio, as of the Evaluation Date. Part B of this Prospectus contains
a general summary of the State Trusts.

Investors Should Read and Retain Both Parts
of This Prospectus for Future Reference.

Principal Secondary Market
Number of Amount of Offering Price
Units Bonds per Unit (12/31/93)

California Trust 3,500 $3,500,000 $622.69
New York Trust 7,871 $4,160,000 $634.57
Pennsylvania Trust 3,500 $1,825,000 $611.89

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE 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 April 29, 1994

<PAGE>

THE TRUST. The Trust consists of three separate unit
investment trusts designated California Trust, New York Trust and
Pennsylvania Trust (the "State Trusts"). Each State Trust has been formed
to preserve capital and to provide interest income (including, where
applicable, earned original issue discount) which, in the opinions of bond
counsel to the respective issuers, is, with certain exceptions, currently
exempt from regular federal income tax under existing law through
investment in a fixed, diversified portfolio of long-term bonds (the
"Bonds") issued by or on behalf of the State for which such Trust is named
and political subdivisions, municipalities and public authorities thereof
and of Puerto Rico and its public authorities. A Trust designated as a
short/intermediate-term trust must have a dollar-weighted average
portfolio maturity of more than two years but less than five years; a
Trust designated as an intermediate-term trust must have a dollar-weighted
average portfolio maturity of more than three years but not more than ten
years; a Trust designated as an intermediate/long-term trust must have a
dollar-weighted average portfolio maturity of more than ten years but less
than fifteen years; and a Trust designated as a long-term trust must have
a dollar-weighted average portfolio maturity of more than ten years.
Although the Supreme Court has determined that Congress has the authority
to subject interest on bonds such as the Bonds in the Trust to regular
federal income taxation, existing law excludes such interest from federal
income tax. In addition, in the opinion of counsel to the Sponsor, the
interest income of each State Trust is exempt, to the extent indicated,
from state and local taxes when held by residents of the state where the
issuers of the Bonds in such State Trust are located. Such interest
income may, however, be subject to the federal corporate alternative
minimum tax and to state and local taxes in other jurisdictions. (See
"Description of Portfolios" in this Part A for a description of those
Bonds which pay interest income subject to the federal individual
alternative minimum tax. See also "Tax Status" in Part B of this
Prospectus.) The State Trusts contain bonds that were acquired at prices
which resulted in the portfolios as a whole being purchased at a deep
discount from par value. The portfolio may also include bonds issued at a
substantial original issue discount, some of which may be Zero Coupon
Bonds that provide for payment at maturity at par value, but do not
provide for the payment of current interest. Gain on the disposition of a
Bond or a Unit purchased at a market discount generally will be treated as
ordinary income, rather than capital gain, to the extent of accrued market
discount. Some of the Bonds in the portfolio may have been purchased at
an aggregate premium over par. (See "Tax Status" in Part B of this
Prospectus.) Some of the Bonds in the Trust have been issued with
optional refunding or refinancing provisions ("Refunded Bonds") whereby
the issuer of the Bond has the right to call such Bond prior to its stated
maturity date (and other than pursuant to sinking fund provisions) and to
issue new bonds ("Refunding Bonds") in order to finance the redemption.
Issuers typically utilize refunding calls in order to take advantage of
lower interest rates in the marketplace. Some of these Refunded Bonds may
be called for redemption pursuant to pre-refunding provisions ("Pre-
Refunded Bonds") whereby the proceeds from the issue of the Refunding
Bonds are typically invested in government securities in escrow for the
benefit of the holders of the Pre-Refunded Bonds until the refunding call
date. Usually, Pre-Refunded Bonds will bear a triple-A rating because of
this escrow. The issuers of Pre-Refunded Bonds must call such Bonds on
their refunding call date. Therefore, as of such date, the Trust will
receive the call price for such bonds but will cease receiving interest
income with respect to them. For a list of those Bonds which are Pre-
Refunded Bonds, if any, as of the Evaluation Date, see "Notes to Financial
Statements" in this Part A. All of the Bonds in each State Trust were
rated "A" or better by Standard & Poor's Corporation or Moody's Investors
Service, Inc. at the time originally deposited in the State Trusts. For a
discussion of the significance of such ratings, see "Description of Bond
Ratings" in Part B of this Prospectus and for a list of ratings on the
Evaluation Date see the "Portfolio". The payment of interest and
preservation of capital are, of course, dependent upon the continuing
ability of the issuers of the Bonds to meet their obligations. There can
be no assurance that the Trusts' investment objectives will be achieved.
Investment in the Trust should be made with an understanding of the risks
which an investment in long-term fixed rate debt obligations may entail,
including the risk that the value of the underlying portfolio will decline
with increases in interest rates, and that the value of Zero Coupon Bonds
is subject to greater fluctuation than coupon bonds in response to such
changes in interest rates. Each Unit represents a fractional undivided
interest in the principal and net income of each State Trust. The
principal amount of Bonds deposited in such State Trust per Unit is
reflected in the Summary of Essential Information. Each State Trust will
be administered as a distinct entity with separate certificates, expenses,
books and records. (See "The Trust--Organization" in Part B of this
Prospectus.) The Units being offered hereby are issued and outstanding
Units which have been purchased by the Sponsor in the secondary market.

PUBLIC OFFERING PRICE. The secondary market Public Offering
Price of each Unit is equal to the aggregate bid price of the Bonds in the
Trust divided by the number of Units outstanding, plus a sales charge of
5.5% of the Public Offering Price, or 5.820% of the net amount invested in
Bonds per Unit. In addition, accrued interest to the expected date of
settlement is added to the Public Offering Price. If Units of the
California Trust had been purchased on the Evaluation Date, the Public
Offering Price per Unit would have been $622.69 plus accrued interest of
$8.05 under the monthly distribution plan, $11.81 under the semi-annual
distribution plan and $11.83 under the annual distribution plan, for a
total of $630.74, $634.50 and $634.52, respectively. If Units of the New
York Trust had been purchased on the Evaluation Date, the Public Offering
Price per Unit would have been $634.57 plus accrued interest of $8.12
under the monthly distribution plan, $11.72 under the semi-annual
distribution plan and $11.72 under the annual distribution plan, for a
total of $642.69, $646.29 and $646.29, respectively. If Units of the
Pennsylvania Trust had been purchased on the Evaluation Date, the Public
Offering Price per Unit would have been $611.89 plus accrued interest of
$8.35 under the monthly distribution plan, $11.94 under the semi-annual
distribution plan and $11.95 under the annual distribution plan, for a
total of $620.24, $623.83 and $623.84, respectively. The Public Offering
Price per Unit can vary on a daily basis in accordance with fluctuations
in the aggregate bid price of the Bonds. (See "Summary of Essential
Information" and "Public Offering--Offering Price" in Part B of this
Prospectus.)

ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN. The
rate of return on an investment in Units of the Trust is measured in terms
of "Estimated Current Return" and "Estimated Long Term Return".

Estimated Long Term Return is calculated by: (1) computing the
yield to maturity or to an earlier call date (whichever results in a lower
yield) for each Bond in the Trust's portfolio in accordance with accepted
bond practices, which practices take into account not only the interest
payable on the Bond but also the amortization of premiums or accretion of
discounts, if any; (2) calculating the average of the yields for the Bonds
in the Trust's portfolio 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 (thus creating an average yield for the portfolio of the
Trust); and (3) reducing the average yield for the portfolio of the Trust
in order to reflect estimated fees and expenses of the Trust and the
maximum sales charge paid by investors. The resulting Estimated Long Term
Return represents a measure of the return to investors earned over the
estimated life of the Trust. (For the Estimated Long Term Return to
Certificateholders under the monthly, semi-annual and annual distribution
plans, see "Summary of Essential Information".)

Estimated Current Return is a measure of the Trust's cash flow.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price per Unit. In
contrast to the Estimated Long Term Return, the Estimated Current Return
does not take into account the amortization of premium or accretion of
discount, if any, on the Bonds in the portfolio of the Trust. Moreover,
because interest rates on Bonds purchased at a premium are generally
higher than current interest rates on newly issued bonds of a similar type
with comparable rating, the Estimated Current Return per Unit may be
affected adversely if such Bonds are redeemed prior to their maturity.

The Estimated Net Annual Interest Income per Unit of the Trust
will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to the Trust and with the redemption, maturity, sale
or other disposition of the Bonds in the Trust. The Public Offering Price
will vary with changes in the bid prices of the Bonds. Therefore, there
is no assurance that the present Estimated Current Return or Estimated
Long Term Return will be realized in the future. (For the Estimated
Current Return to Certificateholders under the monthly, semi-annual and
annual distribution plans, see "Summary of Essential Information". See
"Estimated Long Term Return and Estimated Current Return" in Part B of
this Prospectus.)

A schedule of cash flow projections is available from the
Sponsor upon request.

DISTRIBUTIONS. Distributions of interest income, less
expenses, will be made by the Trust either monthly, semi-annually or
annually depending upon the plan of distribution applicable to the Unit
purchased. A purchaser of a Unit in the secondary market will actually
receive distributions in accordance with the distribution plan chosen by
the prior owner of such Unit and may thereafter change the plan as
provided under "Interest and Principal Distributions" in Part B of this
Prospectus. Distributions of principal, if any, will be made semi-
annually on June 15 and December 15 of each year. (See "Rights of
Certificateholders--Interest and Principal Distributions" in Part B of
this Prospectus. For estimated monthly, semi-annual and annual interest
distributions, see "Summary of Essential Information.")

MARKET FOR UNITS. The Sponsor, although not obligated to do
so, presently maintains and intends to continue to maintain a secondary
market for the Units at prices based on the aggregate bid price of the
Bonds in the Trust portfolio. The secondary market repurchase price is
based on the aggregate bid price of the Bonds in the Trust portfolio, and
the reoffer price is based on the aggregate bid price of the Bonds plus a
sales charge of 5.5% of the Public Offering Price (5.820% of the net
amount invested) plus net accrued interest. If a market is not
maintained, a Certificateholder will be able to redeem his Units with the
Trustee at a price also based on the aggregate bid price of the Bonds.
(See "Sponsor Repurchase" and "Public Offering--Offering Price" in Part B
of this Prospectus.)

TOTAL REINVESTMENT PLAN. Certificateholders under the semi-
annual and annual plans of distribution have the opportunity to have all
their regular interest distributions, and principal distributions, if any,
reinvested in available series of "Insured Municipal Securities Trust" or
"Municipal Securities Trust." (See "Total Reinvestment Plan" in Part B of
this Prospectus. Residents of Texas, see "Total Reinvestment Plan for
Texas Residents" in Part B of this Prospectus.) The Plan is not designed
to be a complete investment program.

For additional information regarding the Public Offering Price
and Estimated Current Return and Estimated Long Term Return for Units of
each State Trust, descriptions of interest and principal distributions,
repurchase and redemption of Units and other essential information
regarding the Trusts, please refer to the Summary of Essential Information
for the particular State Trust on one of the immediately succeeding pages.

<PAGE>

MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 37

CALIFORNIA TRUST

SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1993

Date of Deposit: June 30, 1989 Minimum Principal Distribution:
Principal Amount of Bonds ...$3,500,000 $1.00 per Unit.
Number of Units .............3,500 Weighted Average Life to
Fractional Undivided Inter- Maturity:
est in Trust per Unit .....1/3500 19.6 Years.
Principal Amount of Minimum Value of Trust:
Bonds per Unit ............$1,000.00 Trust may be terminated if
Secondary Market Public value of Trust is less than
Offering Price** $1,400,000 in principal amount
Aggregate Bid Price of Bonds.
of Bonds in Trust .......$2,059,534+++ Mandatory Termination Date:
Divided by 3,500 Units ....$588.44 The earlier of December 31,
Plus Sales Charge of 5.5% 2038 or the disposition of the
of Public Offering Price $34.25 last Bond in the Trust.
Public Offering Price Trustee***: United States Trust
per Unit ................$622.69+ Company of New York.
Redemption and Sponsors' Trustee's Annual Fee: Monthly
Repurchase Price plan $1.05 per $1,000; semi-
per Unit ..................$588.44+ annual plan $.60 per $1,000;
+++ and annual plan is $.35 per
++++ $1,000.
Excess of Secondary Market Evaluator: Kenny S&P Evaluation
Public Offering Price Services.
over Redemption and Evaluator's Fee for Each
Sponsors' Repurchase Evaluation: Minimum of $15
Price per Unit ............$34.25++++ plus $.25 per each issue of
Difference between Public Bonds in excess of 50 issues
Offering Price per Unit (treating separate maturities
and Principal Amount per as separate issues).
Unit Premium/(Discount) ...$(377.31) Sponsors: Bear, Stearns & Co.
Evaluation Time: 4:00 p.m. Inc.
New York Time. and Gruntal & Co.,
Incorporated.
Sponsors' Annual Fee: Maximum of
$.25 per $1,000 principal
amount of Bonds (see "Trust
Expenses and Charges" in Part B
of this Prospectus).

PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED

Monthly Semi-Annual Annual
Option Option Option

Gross annual interest income# .........$47.43 $47.43 $47.43
Less estimated annual fees and
expenses ............................ 2.18 1.57 1.28
Estimated net annual interest ______ ______ ______
income (cash)# ......................$45.25 $45.86 $46.15
Estimated interest distribution# ...... 3.77 22.93 46.15
Estimated daily interest accrual# ..... .1256 .1273 .1281
Estimated current return#++ ........... 7.27% 7.36% 7.41%
Estimated long term return++ .......... 3.79% 3.89% 3.94%
Record dates .......................... 1st of Dec. 1 and Dec. 1
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and Dec. 15
each month June 15

<PAGE>

MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 37

NEW YORK TRUST

SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1993

Date of Deposit: June 30, 1989 Minimum Principal Distribution:
Principal Amount of Bonds ...$4,160,000 $1.00 per Unit.
Number of Units .............7,871 Weighted Average Life to
Fractional Undivided Inter- Maturity:
est in Trust per Unit .....1/7871 12.2 Years.
Principal Amount of Minimum Value of Trust:
Bonds per Unit ............$528.52
Secondary Market Public Trust may be terminated if
Offering Price** value of Trust is less than
Aggregate Bid Price $3,200,000 in principal amount
of Bonds in Trust .......$4,719,977+++ of Bonds.
Divided by 7,871 Units ....$599.67 Mandatory Termination Date:
Plus Sales Charge of 5.5% The earlier of December 31,
of Public Offering Price $34.90 2038 or the disposition of the
Public Offering Price last Bond in the Trust.
per Unit ................$634.57+ Trustee***: United States Trust
Redemption and Sponsors' Company of New York.
Repurchase Price Trustee's Annual Fee: Monthly
per Unit ..................$599.67+ plan $.96 per $1,000; semi-
+++ annual plan $.50 per $1,000;
++++ and annual plan is $.32 per
Excess of Secondary Market $1,000.
Public Offering Price Evaluator: Kenny S&P Evaluation
over Redemption and Services.
Sponsors' Repurchase Evaluator's Fee for Each
Price per Unit ............$34.90++++ Evaluation: Minimum of $15
Difference between Public plus $.25 per each issue of
Offering Price per Unit Bonds in excess of 50 issues
and Principal Amount per (treating separate maturities
Unit Premium/(Discount) ...$106.05 as separate issues).
Evaluation Time: 4:00 p.m. Sponsors: Bear, Stearns & Co.
New York Time. Inc.
and Gruntal & Co.,
Incorporated.
Sponsors' Annual Fee: Maximum of
$.25 per $1,000 principal
amount of Bonds (see "Trust
Expenses and Charges" in Part B
of this Prospectus).

PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED

Monthly Semi-Annual Annual
Option Option Option

Gross annual interest income# .........$45.76 $45.76 $45.76
Less estimated annual fees and
expenses ............................ 1.29 .90 .78
Estimated net annual interest ______ ______ ______
income (cash)# ......................$44.47 $44.86 $44.98
Estimated interest distribution# ...... 3.70 22.43 44.98
Estimated daily interest accrual# ..... .1235 .1246 .1249
Estimated current return#++ ........... 7.01% 7.07% 7.09%
Estimated long term return ++ ......... 3.55% 2.33% 3.63%
Record dates .......................... 1st of Dec. 1 and Dec. 1
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and Dec. 15
each month June 15

<PAGE>

MUNICIPAL SECURITIES TRUST
MULTI-STATE SERIES 37

PENNSYLVANIA TRUST

SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 31, 1993

Date of Deposit: June 30, 1989 Minimum Principal Distribution:
Principal Amount of Bonds ...$1,825,000 $1.00 per Unit.
Number of Units .............3,500 Weighted Average Life to
Fractional Undivided Inter- Maturity:
est in Trust per Unit .....1/3500 14.9 Years.
Principal Amount of Minimum Value of Trust:
Bonds per Unit ............$521.43 Trust may be terminated if
Secondary Market Public value of Trust is less than
Offering Price** $1,400,000 in principal amount
Aggregate Bid Price of Bonds.
of Bonds in Trust .......$2,023,834+++ Mandatory Termination Date:
Divided by 3,500 Units ....$578.24 The earlier of December 31,
Plus Sales Charge of 5.5% 2038 or the disposition of the
of Public Offering Price $33.65 last Bond in the Trust.
Public Offering Price Trustee***: United States Trust
per Unit ................$611.89+ Company of New York.
Redemption and Sponsors' Trustee's Annual Fee: Monthly
Repurchase Price plan $1.05 per $1,000; semi-
per Unit ..................$578.24+ annual plan $.60 per $1,000;
+++ and annual plan is $.35 per
++++ $1,000.
Excess of Secondary Market Evaluator: Kenny S&P Evaluation
Public Offering Price Services.
over Redemption and Evaluator's Fee for Each
Sponsors' Repurchase Evaluation: Minimum of $15
Price per Unit ............$33.65++++ plus $.25 per each issue of
Difference between Public Bonds in excess of 50 issues
Offering Price per Unit (treating separate maturities
and Principal Amount per as separate issues).
Unit Premium/(Discount) ...$90.46 Sponsors: Bear, Stearns & Co.
Evaluation Time: 4:00 p.m. Inc.
New York Time. and Gruntal & Co.,
Incorporated.
Sponsors' Annual Fee: Maximum of
$.25 per $1,000 principal
amount of Bonds (see "Trust
Expenses and Charges" in Part B
of this Prospectus).

PER UNIT INFORMATION BASED UPON INTEREST DISTRIBUTION PLAN ELECTED

Monthly Semi-Annual Annual
Option Option Option

Gross annual interest income# .........$46.96 $46.96 $46.96
Less estimated annual fees and
expenses ............................ 1.65 1.27 1.11
Estimated net annual interest ______ ______ ______
income (cash)# ......................$45.31 $45.69 $45.85
Estimated interest distribution# ...... 3.77 22.84 45.85
Estimated daily interest accrual# ..... .1258 .1269 .1273
Estimated current return#++ ........... 7.40% 7.47% 7.49%
Estimated long term return ++ ......... 3.51% 3.58% 3.60%
Record dates .......................... 1st of Dec. 1 and Dec. 1
each month June 1
Interest distribution dates ........... 15th of Dec. 15 and Dec. 15
each month June 15

<PAGE>
* The Date of Deposit is the date on which the Trust Agreement was
signed and the deposit of the Bonds with the Trustee made.

** For information regarding offering price per unit and applicable
sales charge under the Total Reinvestment Plan, see "Total
Reinvestment Plan" in Part B of this Prospectus.

*** The Trustee maintains its corporate office at 770 Broadway, New
York, New York 10003 (tel. no.: 1-800-428-8890). For information
regarding redemption by the Trustee, see "Trustee Redemption" in
Part B of this Prospectus.

+ Plus accrued interest to expected date of settlement (approximately
five business days after purchase) of $8.05 monthly, $11.81 semi-
annually and $11.83 annually for the California Trust, $8.12
monthly, $11.72 semi-annually and $11.72 annually for the New York
Trust, and $8.35 monthly, $11.94 semi-annually and $11.95 annually
for the Pennsylvania Trust.

++ The estimated current return and estimated long term return are
increased for transactions entitled to a discount (see "Employee
Discounts" in Part B of this Prospectus), and are higher under the
semi-annual and annual options due to lower Trustee's fees and
expenses.

+++ Based solely upon the bid side evaluation of the underlying Bonds
(including, where applicable, undistributed cash from the principal
account). Upon tender for redemption, the price to be paid will be
calculated as described under "Trustee Redemption" in Part B of this
Prospectus.

++++ See "Comparison of Public Offering Price, Sponsor's Repurchase Price
and Redemption Price" in Part B of this Prospectus.

# Does not include accrual from original issue discount bonds, if any.

<PAGE>

INFORMATION REGARDING THE TRUSTS
AS OF DECEMBER 31, 1993

DESCRIPTION OF PORTFOLIOS

California Trust

Each Unit in the California Trust consists of a 1/3500th undivided
interest in the principal and net income of the Trust in the ratio of one
Unit for each $1,000.00 of principal amount of the Bonds currently held in
the Trust. The Sponsors have not participated as a sole underwriter or
manager, co-manager or member of an underwriting syndicate from which any
of the initial aggregate principal amount of the Bonds were acquired. The
portfolio of the California Trust consists of 8 issues of 8 issuers
located in California. Approximately 48.1% of the Bonds are obligations
of state and local housing authorities; approximately 22.9% are hospital
revenue bonds; and none were issued in connection with the financing of
nuclear generating facilities. None of the Bonds are mortgage subsidy
bonds. All of the Bonds are subject to redemption prior to their stated
maturity dates pursuant to sinking fund or optional call provisions. The
Bonds may also be subject to other calls, which may be permitted or
required by events which cannot be predicted (such as destruction,
condemnation, termination of a contract, or receipt of excess or
unanticipated revenues). None of the Bonds are general obligation bonds.
Eight issues representing $3,500,000 of the principal amount of the Bonds
are payable from the income of a specific project or authority and are not
supported by the issuer's power to levy taxes. The portfolio is divided
for purpose of issue as follows: Certificate of Participation 1,
Federally Insured Mortgage 1, Hospital 3, Tax Allocation 1, Transit
Facility 1 and Water 1. For an explanation of the significance of these
factors see "The State Trusts--Portfolios" in Part B of this Prospectus.

As of December 31, 1993, $1,685,000 (approximately 48.1% of the
aggregate principal amount of the Bonds) were original issue discount
bonds. Of these original issue discount bonds, $1,685,000 (approximately
48.1% of the aggregate principal amount of the Bonds) were Zero Coupon
Bonds. Zero Coupon Bonds do not provide for the payment of any current
interest and provide for payment at maturity at par value unless sooner
sold or redeemed. The market value of Zero Coupon Bonds is subject to
greater fluctuations than coupon bonds in response to changes in interest
rates. None of the Bonds in the Trust were purchased at a "market"
discount from par value at maturity, approximately 51.9% were purchased at
a premium and none were purchased at par. For an explanation of the
significance of these factors see "The Portfolios--Discount and Zero
Coupon Bonds" in Part B of this Prospectus.

None of the Bonds in the California Trust are subject to the Federal
individual alternative minimum tax under the Tax Reform Act of 1986. See
"Tax Status" in Part B of this Prospectus.

<PAGE>

New York Trust

Each Unit in the New York Trust consists of a 1/7871st undivided
interest in the principal and net income of the Trust in the ratio of one
Unit for each $528.52 of principal amount of the Bonds currently held in
the Trust. The Sponsors have not participated as a sole underwriter or
manager, co-manager or member of an underwriting syndicate from which any
of the initial aggregate principal amount of the Bonds were acquired. The
portfolio of the New York Trust consists of 11 issues of 11 issuers
located in New York. None of the Bonds are obligations of state and local
housing authorities; approximately 48.1% are hospital revenue bonds; and
none were issued in connection with the financing of nuclear generating
facilities. None of the Bonds are mortgage subsidy bonds. All of the
Bonds are subject to redemption prior to their stated maturity dates
pursuant to sinking fund or optional call provisions. The Bonds may also
be subject to other calls, which may be permitted or required by events
which cannot be predicted (such as destruction, condemnation, termination
of a contract, or receipt of excess or unanticipated revenues). One issue
representing $500,000 of the principal amount of the Bonds is a general
obligation bond. All 10 of the remaining issues representing $3,660,000
of the principal amount of the Bonds are payable from the income of a
specific project or authority and are not supported by the issuer's power
to levy taxes. The portfolio is divided for purpose of issue as follows:
Certificate of Participation 1, Convention Center 1, Dormitory Authority
1, Electric 1, Hospital 4, Power 1 and Transit Facility 1. For an
explanation of the significance of these factors see "The State Trusts--
Portfolios" in Part B of this Prospectus.

As of December 31, 1993, none of the aggregate principal amount of
the Bonds were original issue discount bonds. None of the Bonds in the
Trust were purchased at a "market" discount from par value at maturity,
100% were purchased at a premium and none were purchased at par. For an
explanation of the significance of these factors see "The Portfolios--
Discount and Zero Coupon Bonds" in Part B of this Prospectus.

None of the Bonds in the New York Trust are subject to the federal
individual alternative minimum tax under the Tax Reform Act of 1986. See
"Tax Status" in Part B of this Prospectus.

<PAGE>

Pennsylvania Trust

Each Unit in the Pennsylvania Trust consists of a 1/3500th undivided
interest in the principal and net income of the Trust in the ratio of one
Unit for each $521.43 of principal amount of the Bonds currently held in
the Trust. The Sponsors have not participated as a sole underwriter or
manager, co-manager or member of an underwriting syndicate from which any
of the initial aggregate principal amount of the Bonds were acquired. The
portfolio of the Pennsylvania Trust consists of 7 issues of 7 issuers
located in Pennsylvania. None of the Bonds are obligations of state and
local housing authorities; approximately 26.0% are hospital revenue bonds;
and none were issued in connection with the financing of nuclear
generating facilities. None of the Bonds are mortgage subsidy bonds. All
of the Bonds are subject to redemption prior to their stated maturity
dates pursuant to sinking fund or optional call provisions. The Bonds may
also be subject to other calls, which may be permitted or required by
events which cannot be predicted (such as destruction, condemnation,
termination of a contract, or receipt of excess or unanticipated
revenues). One issue representing $350,000 of the principal amount of the
Bonds is a general obligation bond. All 6 of the remaining issues
representing $1,475,000 of the principal amount of the Bonds are payable
from the income of a specific project or authority and are not supported
by the issuer's power to levy taxes. The portfolio is divided for purpose
of issue as follows: Hospital 2, Pollution Control 1, Resource Recovery
1, Solid Waste 1 and Turnpike 1. For an explanation of the significance
of these factors see "The State Trusts--Portfolios" in Part B of this
Prospectus.

None of the Bonds in the Pennsylvania Trust are subject to the
federal individual alternative minimum tax under the Tax Reform Act of
1986. See "Tax Status" in Part B of this Prospectus.

<PAGE>

FINANCIAL AND STATISTICAL INFORMATION

Selected data for each Unit outstanding for the periods listed below:

California Trust

December 31, 1991 3,500 $620.09 $45.36 $45.96 $46.22 -0-
December 31, 1992 3,500 611.47 45.24 45.86 46.15 -0-
December 31, 1993 3,500 599.57 45.24 45.86 46.15 -0-

New York Trust

Distribu-
tions of
Distributions of Interest Principal
During the Period (per Unit) During
Net Asset * Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
December 31, 1991 8,000 $618.43 $44.16 $44.82 $45.03 -0-
December 31, 1992 8,000 626.29 44.16 44.80 45.00 -0-
December 31, 1993 7,871 611.08 44.42 44.90 45.04 $12.52

Pennsylvania Trust

Distribu-
tions of
Distributions of Interest Principal
During the Period (per Unit) During
Net Asset * Semi- the
Units Out- Value Monthly Annual Annual Period
Period Ended standing Per Unit Option Option Option (Per Unit)
December 31, 1991 3,500 $606.35 $44.88 $45.50 $45.75 -0-
December 31, 1992 3,500 603.80 44.82 45.44 45.70 $1.52
December 31, 1993 3,500 589.37 45.00 45.55 45.75 8.32

* Net Asset Value per Unit is calculated by dividing net assets as
disclosed in the "Statement of Net Assets" by the number of Units
outstanding as of the date of the Statement of Net Assets. See
Note 5 of Notes to Financial Statements for a description of the
components of Net Assets.

<PAGE>

Independent Auditors' Report

The Sponsor, Trustee and Certificateholders
Municipal Securities Trust, Multi-State Series 37:

We have audited the accompanying statements of net assets, including the
portfolios, of Municipal Securities Trust, Multi-State Series 37
(comprising, respectively, the California Trust, New York Trust and
Pennsylvania Trust) as of December 31, 1993, and the related statements
of operations, and changes in net assets for each of the years in the
three year period then ended. These financial statements are the
responsibility of the Trustee (see note 2). 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 December 31, 1993, by correspondence with the Trustee. An
audit also includes assessing the accounting principles used and
significant estimates made by management, 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 each of the respective
trusts constituting the Municipal Securities Trust, Multi-State Series 37
as of December 31, 1993, and the results of their operations and the
changes in their net assets for each of the years in the three year period
then ended in conformity with generally accepted accounting principles.

KPMG Peat Marwick

New York, New York
March 31, 1994
<PAGE>
<TABLE>

Statements of Net Assets

December 31, 1993
<CAPTION>
California New York Pennsylvania
Trust Trust Trust
<S> <C> <C> <C>
Investments in marketable
securities, at market value
(cost $2,123,978, $4,568,793
and $2,039,410, respectively) $ 2,059,534 4,720,895 2,023,802

Excess of other assets over
total liabilities 38,968 88,950 38,998
----------- ------------ -----------

Net assets (3,500, 7,871 and
3,500 units of fractional
undivided interest outstanding,
$599.57, $611.08 and $589.37
per unit, respectively) $ 2,098,502 4,809,845 2,062,800
=========== ============ ===========

See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>

CALIFORNIA TRUST

Statements of Operations
<CAPTION>
Years ended December 31,
---------- -- ---------- ----------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Investment income - interest $ 172,822 172,653 171,623
---------- ---------- ----------

Expenses:
Trustee's fees 4,509 4,369 4,200
Evaluator's fees 1,483 1,370 1,155
Sponsor's advisory fee 1,360 875 1,250
---------- ---------- ----------

Total expenses 7,352 6,614 6,605
---------- ---------- ----------

Investment income, net 165,470 166,039 165,018

Unrealized appreciation
(depreciation) for the year (47,954) (37,057) 75,379
---------- ---------- ----------

Net increase in net
assets resulting
from operations $ 117,516 128,982 240,397
========== ========== ==========

See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>

NEW YORK TRUST

Statements of Operations
<CAPTION>
Years ended December 31,
----------- -- ---------- -----------
1993 1992 1991
----------- ---------- -----------
<S> <C> <C> <C>
Investment income - interest $ 365,519 381,072 379,013
----------- ---------- -----------

Expenses:
Trustee's fees 6,040 7,783 7,542
Evaluator's fees 1,483 1,370 1,155
Sponsor's advisory fee 1,618 2,000 1,250
----------- ---------- -----------

Total expenses 9,141 11,153 9,947
----------- ---------- -----------

Investment income, net 356,378 369,919 369,066
----------- ---------- -----------

Realized and unrealized gain (loss)
on investments:
Realized loss on bonds
sold or called (57,088) - -
Unrealized appreciation
for the year 33,877 48,776 198,970
----------- ---------- -----------

Net gain (loss)
on investments (23,211) 48,776 198,970
----------- ---------- -----------

Net increase in net
assets resulting
from operations $ 333,167 418,695 568,036
=========== ========== ===========

See accompanying notes to financial statements.
</TABLE>

<PAGE>
PENNSYLVANIA TRUST

<TABLE>
Statements of Operations
<CAPTION>
Years ended December 31,
--------- --- ----------- -----------
1993 1992 1991
--------- ----------- -----------
<S> <C> <C> <C>
Investment income - interest $ 166,136 168,674 168,563
--------- ----------- -----------

Expenses:
Trustee's fees 3,578 4,032 4,046
Evaluator's fees 1,483 1,370 1,155
Sponsor's advisory fee 698 875 1,250
--------- ----------- -----------

Total expenses 5,759 6,277 6,451
--------- ----------- -----------

Investment income, net 160,377 162,397 162,112
--------- ----------- -----------

Realized and unrealized gain (loss)
on investments:
Realized loss on bonds
sold or called (12,091) (2,309) -
Unrealized appreciation
(depreciation) for the year (10,928) (5,465) 69,330
--------- ----------- -----------

Net gain (loss)
on investments (23,019) (7,774) 69,330
--------- ----------- -----------

Net increase in net
assets resulting
from operations $ 137,358 154,623 231,442
========= =========== ===========

See accompanying notes to financial statements.
</TABLE>

<PAGE>

<TABLE>
CALIFORNIA TRUST

Statements of Changes in Net Assets
<CAPTION>
Years ended December 31,
------------- -- ------------ ------------
1993 1992 1991
------------- ------------ ------------
<S> <C> <C> <C>
Operations:
Investment income, net $ 165,470 166,039 165,018
Unrealized appreciation
(depreciation) for the year (47,954) (37,057) 75,379
------------- ------------ ------------

Net increase in net
assets resulting
from operations 117,516 128,982 240,397

Distributions to Certificateholders:
Investment income 159,165 159,163 159,562
------------- ------------ ------------

Total increase (decrease) (41,649) (30,181) 80,835

Net assets at beginning of year 2,140,151 2,170,332 2,089,497
------------- ------------ ------------

Net assets at end of year (including
undistributed net investment
income of $64,969, $58,664, and
$51,788 respectively) $ 2,098,502 2,140,151 2,170,332
============= ============ ============

See accompanying notes to financial statements.
</TABLE>

<PAGE>

<TABLE>
NEW YORK TRUST

Statements of Changes in Net Assets
<CAPTION>
Years ended December 31,
------------ - ----------- - ------------
1993 1992 1991
------------ ----------- ------------
<S> <C> <C> <C>
Operations:
Investment income, net $ 356,378 369,919 369,066
Realized loss on investments (57,088) - -
Unrealized appreciation
for the year 33,877 48,776 198,970
------------ ----------- ------------

Net increase in net
assets resulting
from operations 333,167 418,695 568,036

Distributions to Certificateholders:
Investment income 354,231 355,803 355,900
Principal 100,047 - -

Redemptions:
Interest 1,372 - -
Principal 78,029 - -

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

Total distributions and redemptions 533,679 355,803 355,900
------------ ----------- ------------

Total increase (decrease) (200,512) 62,892 212,136

Net assets at beginning of year 5,010,357 4,947,465 4,735,329
------------ ----------- ------------

Net assets at end of year (including
undistributed net investment
income of $89,868, $130,302 and
$116,186, respectively) $ 4,809,845 5,010,357 4,947,465
============ =========== ============

See accompanying notes to financial statements.
</TABLE>

<PAGE>

<TABLE>
PENNSYLVANIA TRUST

Statements of Operations
<CAPTION>
Years ended December 31,
--------- --- ----------- -----------
1993 1992 1991
--------- ----------- -----------
<S> <C> <C> <C>
Investment income - interest $ 166,136 168,674 168,563
--------- ----------- -----------

Expenses:
Trustee's fees 3,578 4,032 4,046
Evaluator's fees 1,483 1,370 1,155
Sponsor's advisory fee 698 875 1,250
--------- ----------- -----------

Total expenses 5,759 6,277 6,451
--------- ----------- -----------

Investment income, net 160,377 162,397 162,112
--------- ----------- -----------

Net gain (loss)
on investments (23,019) (7,774) 69,330
--------- ----------- -----------

Net increase in net
assets resulting
from operations $ 137,358 154,623 231,442
========= =========== ===========

See accompanying notes to financial statements.
</TABLE>

<PAGE>

Notes to Financial Statements

December 31, 1993, 1992 and 1991

(1) Organization

Municipal Securities Trust, Multi-State Series 37 (Trust) was
organized on June 30, 1989 by Bear, Stearns & Co. Inc. and Gruntal
& Co., Incorporated (Co-Sponsors) under the laws of the State of
New York by a Trust Indenture and Agreement, and is registered
under the Investment Company Act of 1940.

(2) Summary of Significant Accounting Policies

United States Trust Company of New York (Trustee) has custody of
and responsibility for the accounting records and financial
statements of the Trust and is responsible for establishing and
maintaining a system of internal control related thereto.

The Trustee is also responsible for all estimates of expenses and
accruals reflected in the Trust's financial statements. The
accompanying financial statements have been adjusted to record the
unrealized appreciation (depreciation) of investments and to record
interest income and expenses on the accrual basis.

The discount on the zero-coupon bonds is accreted by the interest
method over the respective lives of the bonds. The accretion of
such discount is included in interest income; however, it is not
distributed until realized in cash upon maturity or sale of the
respective bonds.

Investments are carried at market value which is determined by either
Standard & Poor's Corporation or Moody's Investors Service, Inc.
(Evaluator) as discussed in Footnotes to Portfolio. The market value
of the investments is based upon the bid prices for the bonds at the
end of the period, except that the market value on the date of
deposit represents the cost to the Trust based on the offering
prices for investments at that date. The difference between cost
(including accumulated accretion of original issue discount on zero-
coupon bonds) and market value is reflected as unrealized
appreciation (depreciation) of investments. Securities transactions
are recorded on the trade date. Realized gains (losses) from
securities transactions are determined on the basis of average cost
of the securities sold or redeemed.

(3) Income Taxes

The Trust is not subject to Federal income taxes as provided by the
Internal Revenue Code.

(4) Trust Administration

The fees and expenses of each state Trust are incurred and paid on the
basis set forth under "Trust Expenses and Charges" in Part B of this
Prospectus.

The Trust Indenture and Agreement provides for interest distributions
as often as monthly (depending upon the distribution plan elected by
the Certificateholders).

The Trust Indenture and Agreement further requires that principal
received from the disposition of bonds, other than those bonds sold in
connection with the redemption of units, be distributed to
Certificateholders.

See "Financial and Statistical Information" in Part A of this
Prospectus for the amounts of per unit distributions during the years
ended December 31, 1993, 1992, and 1991.

The Trust Indenture and Agreement also requires each state Trust to
redeem units tendered. 129 units were redeemed by the New York Trust
during the year ended December 31, 1993. No units have been redeemed
by the New York Trust during the years ended December 31, 1992 and
1991. No units have been redeemed by the California and Pennsylvania
Trusts since their inception.

(5) Net Assets

At December 31, 1993, the net assets of the Trust represented the
interests of Certificateholders as follows:

California New York Pennsylvania
Trust Trust Trust
Original cost to
Certificateholders $ 2,220,081 5,038,973 2,193,555
Less initial gross
underwriting commission (122,104) (277,143) (120,645)

2,097,977 4,761,830 2,072,910

Cost of bonds sold or called - (193,037) (33,500)
Net unrealized appreciation
(depreciation) (64,444) 152,102 (15,608)
Undistributed net
investment income 64,969 89,868 38,966
Undistributed (Distributions in
in excess of) proceeds
from bonds sold or called - (918) 32

Total $ 2,098,502 4,809,845 2,062,800

(5), Continued

The original cost to Certificateholders, less the initial gross
underwriting commission, represents the aggregate initial public
offering price net of the applicable sales charge on 3,500, 8,000 and
3,500 units of fractional undivided interest of the California Trust,
New York Trust and Pennsylvania Trust, respectively, as of the date of
deposit.

Undistributed net investment income includes accumulated accretion of
original issue discount of $26,001, $0 and $0 for the California Trust,
New York Trust and Pennsylvania Trust, respectively.
<PAGE>

<TABLE>

MUNICIPAL SECURITIES TRUST, MULTI-STATE SERIES 37
CALIFORNIA TRUST

Portfolio
December 31, 1993

Port- Aggregate Coupon Rate/ Redemption Feature
folio Principal Name of Issuer Ratings Date(s) of S.F.--Sinking Fund Market
No. Amount and Title of Bonds (1) Maturity(2) Ref.--Refunding(2)(7) Value(3)
-- --------- --------------------- ---- ----------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 $ 350,000 Calif. Hlth. Facs. A+ 9.250% 1/01/06 @ 100 S.F. $ 375,316
Auth. Hosp. Rev. 1/01/2013 1/01/95 @ 102 Ref.
Rfndg. Bonds (Sutter
Cmmnty. Hosps. of
Sacramento) Series
1985A

2 350,000 Calif. Hlth. Facs. AAA 9.375 9/01/11 @ 100 S.F. 392,336
Finc. Auth. Insrd. 9/01/2015 9/01/95 @ 102 Ref.
Hosp. Rev. (Centinela
Hosp. Med. Cntr.)
1985A (MBIA) (5)

3 350,000 Calif. State Dept. of AA 9.500 12/01/98 @ 100 S.F. 377,850
Wtr. Central Valley 12/01/2004 12/01/94 @ 102 Ref.
Pwr. Fac. Bonds 1985
Series G

4 250,000 Los Angeles Calif. AAA 9.000 6/01/07 @ 100 S.F. 286,602
Cert. of Part. Van 6/01/2015 6/01/96 @ 102 Ref.
Nuys Courthouse Prjt.
Bonds 1985 (5)

5 250,000 Los Angeles Calif. AAA 8.500 12/01/01 @ 100 S.F. 279,885
Cmnty. Redev. Agency 12/01/2010 12/01/95 @ 102 Ref.
Tax Alloc. Bonds
(Bunker Hill Prjt.)
Series 1985 A (5)

6 100,000 Insrd. Hosp. Rev. A+ 9.000 7/01/98 @ 100 S.F. 108,832
Cert. of Part. 7/01/2013 7/01/95 @ 102 Ref.
(Hollywood
Presbyterian
Hosp.-Olmsted
Memorial) Series 1985

7 165,000 San Francisco Calif. AAA 9.000 7/01/05 @ 100 S.F. 184,018
Bay Area Rapid 7/01/2011 7/01/95 @ 103 Ref.
Transit Sales Tax
Rev. Bonds 1985 (5)

8 1,685,000 Santa Clara Calif. AAA 0.000 4/01/07 @ 13.074 S.F. 54,695
Hsg. Auth. Multi-Fam. 4/01/2026 10/01/03 @ 8.987 Ref.
Hsg. Rev. Bonds
Series 1984 (FHA
Insrd. Mtg.
Loan-Cedar Glen
Aprtmts. Prjt.)
(MBIA)

$ 3,500,000 $ 2,059,534
========= ==========

See accompanying footnotes to portfolio and notes to financial statements
</TABLE>
<PAGE>

<TABLE>

NEW YORK TRUST

Portfolio
December 31, 1993
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
1 $ 250,000 N.Y. State Cert. of BAA1* 8.300% 9/01/08 @ 100 S.F. $ 286,188
Part. (Commissioner 9/01/2012 9/01/97 @ 102 Ref.
of Mental Hlth.) 1987

2 30,000 N.Y. State Dorm. A 10.500 7/01/05 @ 100 S.F. 31,621
Auth. (Crouse Irving 7/01/2017 7/01/94 @ 102 Ref.
Mem. Hosp.) Insrd.
Rev. Bonds 1984
(HIBI)

3 500,000 N.Y. Energy Rsrch. & AA2* 9.000 No Sinking Fund 551,155
Dev. Auth. Elec. Fac. 8/15/2020 8/15/95 @ 102 Ref.
Rev. Bonds 1985A (Con
Edison Co. of N.Y.
Inc. Prjt.)

4 500,000 N.Y. State Med. Care AAA 8.500 No Sinking Fund 560,400
Facs. Finc. Agncy. 1/15/2022 1/15/96 @ 102 Ref.
Insrd. Mtg. Hosp.
Rev. Bonds 1985
Series A (5)

5 500,000 N.Y. State Med. Care AAA 8.875 7/15/02 @ 100 S.F. 564,080
Facs. (Mt. Sinai 1/15/2026 1/15/96 @ 102 Ref.
Hosp.) 1985 Series C
FHA Insrd. Bonds (5)

6 500,000 N.Y. State Med. Care BBB+ 8.875 2/15/00 @ 100 S.F. 577,190
Facs. Finc. Agncy. 8/15/2007 8/15/97 @ 102 Ref.
Mental Hlth. Serv.
Facs. Imprvmt. Rev.
Rfndg. Bonds 1987
Series A

7 500,000 N.Y. Med. Care Fac. AA 8.000 8/15/90 @ 100 S.F. 564,745
Finc. Agncy. Hosp. 2/15/2025 8/15/97 @ 102 Ref.
Insrd. Mtg. Rfndg.
Rev. Bonds 1987A

8 180,000 Metro. Trans. Auth. AAA 8.500 7/01/06 @ 100 S.F. 205,648
N.Y. Commuter Facs. 7/01/2011 7/01/96 @ 102 Ref.
Svc. Contract Bonds
1986 H (5)
" " " " " " " " " "
9 500,000 Triborough Bridge & AAA* 9.000 1/01/03 @ 100 S.F. 553,165
Tunnel Auth. Cnvntn. 1/01/2011 7/01/95 @ 102 Ref.
Cntr. Prjt. Bonds
1985 Series D (5)

10 200,000 N.Y. State Powr. AA 8.000 1/01/14 @ 100 S.F. 229,584
Auth. Gen. Purp. Rev. 1/01/2017 1/01/98 @ 102 Ref.
Bonds 1988 Series V

11 500,000 N.Y. City Gen. Oblig. AAA 8.750 No Sinking Fund 597,119
Bonds 1987 Series A 11/01/2016 11/01/97 @ 101.5 Ref.
(5)

$ 4,160,000 $ 4,720,895
========= ==========

See accompanying footnotes to portfolio and notes to financial statements
</TABLE>
<PAGE>

<TABLE>
MUNICIPAL SECURITIES TRUST, MULTI-STATE SERIES 37
PENNSYLVANIA TRUST
Portfolio
December 31, 1993

Port Aggregate Coupon Rate/ Redemption Feature
foli Principal Name of Issuer Ratings Date(s) of S.F.--Sinking Fund Market
No. Amount and Title of Bonds (1) Maturity(2) Ref.-- Refunding (2) Value(3)
(7)
-- --------- --------------------- ---- ----------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1 $ 150,000 Penn. Tnpke. Comm. AAA 7.875% 12/01/07 @ 100 S.F. $ 171,335
Tnpke. Rev. Bonds 12/01/2015 12/01/96 @ 102 Ref.
Series 1986A (5)

2 350,000 Penn. Hghr. Ed. Facs. AA* 9.250 7/01/02 @ 100 S.F. 389,438
Auth. Hosp. Rev. 7/01/2008 11/01/95 @ 102 Ref.
Rfndg. Bonds 1985B
Thomas Jefferson
Univ. Hosp.

3 350,000 Allegheny Cnty. AAA 9.125 3/01/00 @ 100 S.F. 378,959
Institution Dstrct. 3/02/2001 3/01/95 @ 102 Ref.
No. 17 Penn. Gen.
Oblig. Rfndg. Bonds
1985 (MBIA)

4 250,000 Delaware Cnty. Indus. AA3* 8.100 12/01/06 @ 100 S.F. 277,685
Dev. Auth. (Penn.) 12/01/2013 12/01/95 @ 104 Ref.
Rfndg. Rev. Bonds
(Res. Rcvry. Prjt.)
Series 1988A
(Security Pacific
Letter of Credit)

5 125,000 Erie Co. Hosp. Auth. A 11.750 7/01/97 @ 100 S.F. 134,193
Hosp. Rev. Rfndg. 1/01/2006 7/01/94 @ 103 Ref.
Bonds Series 1984
(Hamot Med.
Cntr/Hamot Hlth. Sys.
Inc.)

6 350,000 Lehigh Cnty. Indus. A 9.375 No Sinking Fund 383,719
Dev. Auth. Poll. 7/01/2015 7/01/95 @ 102 Ref.
Cntrl. Rev. Bonds
(Penn. Power & Lt.
Co. Projt.) Series
1985A

7 250,000 York Cnty. Penn. AA- 8.200 12/01/08 @ 100 S.F. 288,473
Solid Waste & Refuse 12/01/2014 12/01/97 @ 103 Ref.
Auth. (Commnwlth. of
Penn.) Indus. Dev.
Rev. Bonds (Res.
Rcvry. Prjt.) Series
1985 B

$ 1,825,000 $ 2,023,802
========= ==========

See accompanying footnotes to portfolio and notes to financial statements
</TABLE>

<PAGE>

Footnotes to Portfolios

December 31, 1993

(1) All ratings are by Standard & Poor's Corporation, except for those
identified by an asterisk (*) which are by Moody's Investors Service,
Inc. A brief description of the ratings symbols and their meanings
is set forth under "Description of Bond Ratings" in Part B of this
Prospectus.

(2) See "The Trust - Portfolio" in Part B of this Prospectus for an
explanation of redemption features. See "Tax Status" in Part B of
this Prospectus for a statement of the Federal tax consequences to a
Certificateholder upon the sale, redemption or maturity of a bond.

(3) At December 31, 1993, the net unrealized appreciation (depreciation)
of all the bonds was comprised of the following:

California New York Pennsylvania
Trust Trust Trust

Gross unrealized appreciation $ 9,650 171,198 42,475
Gross unrealized depreciation (74,094) (19,096) (58,083)

Net unrealized
appreciation (depreciation) $ (64,444) 152,102 (15,608)

(4) The annual interest income, based upon bonds held at December 31,
1993, (excluding accretion of original issue discount on zero-coupon
bonds) to the Municipal Securities Trust, Multi-State Series 37 is
$166,038, $360,200 and $164,373 for the California Trust, New York
Trust and Pennsylvania Trust, respectively.

(5) The bonds have been prerefunded and will be redeemed at the next
refunding call date.

(6) Bonds sold or called after December 31, 1993 are noted in a footnote
"Changes in Trust Portfolio" under "Description of Portfolio" in Part
A of this Prospectus.

(7) The Bonds may also be subject to other calls, which may be permitted
or required by events which cannot be predicted (such as destruction,
condemnation, termination of a contract, or receipt of excess or
unanticipated revenues).

<PAGE>

Note: Part B of This Prospectus May Not Be
Distributed Unless Accompanied by Part A.

Please Read and Retain Both Parts
of the Prospectus for Future Reference.

MUNICIPAL SECURITIES TRUST

Prospectus Part B
Dated: April 29, 1994

THE TRUST

Organization

"Municipal Securities Trust" (the "Trust") consists of several
separate "unit investment trusts," designated as set forth in Part A.*
The Trust was created under the laws of the State of New York pursuant to
a Trust Indenture and Agreement** (collectively, the "Trust Agreement"),
dated the Date of Deposit, among Bear, Stearns & Co. Inc. and Gruntal &
Co., Incorporated (sometimes referred to as the "Sponsor" or the
"Sponsors"), as Sponsors, Kenny S&P Evaluation Services, as Evaluator, and
United States Trust Company of New York, as Trustee. The Trust, including
each State Trust, will be administered as a distinct entity with separate
certificates, expenses, books and records.

* This Part B relates to the outstanding series of Municipal
Securities Trust, Municipal Securities Trust Discount Series or
Multi-State Series which may include California Trust, Florida
Trust, New York Trust, Pennsylvania Trust and/or Virginia Trust
(collectively, the "State Trusts") as reflected in Part A attached
hereto.

** References in this Prospectus to the Trust Agreement are qualified
in their entirety by the respective Trust Indentures and Agreements
which are incorporated herein by reference.

<PAGE>

On the Date of Deposit the Sponsors deposited with the Trustee long-
term bonds, including delivery statements relating to contracts for the
purchase of certain such bonds (the "Bonds"), and cash or irrevocable
letters of credit issued by a major commercial bank in the amount required
for such purchases. Thereafter, the Trustee, in exchange for the Bonds so
deposited, delivered to the Sponsors the Certificates evidencing the
ownership of all Units of the Trust. The Trust consists of the interest-
bearing bonds described under "The Trust" in Part A of this Prospectus,
the interest on which is, in the opinions of bond counsel to the
respective issuers given at the time of original delivery of the Bonds,
currently exempt from regular federal income tax under existing law.

Each "Unit" outstanding on the Evaluation Date represented an
undivided interest or pro rata share in the principal and interest of each
Trust in the ratio of one Unit to the principal amount of Bonds in such
Trust on such date as specified in Part A of this Prospectus. To the
extent that any Units are redeemed by the Trustee, the fractional
undivided interest or pro rata share in each Trust represented by each
unredeemed Unit of each Trust will increase, although the actual interest
in each Trust represented by such fraction will remain unchanged. Units
will remain outstanding until redeemed upon tender to the Trustee by Cer-
tificateholders, which may include the Sponsors, or until the termination
of the Trust Agreement.

Objectives

Each Trust, each one of a series of similar but separate unit
investment trusts formed by the Sponsors, offers investors the opportunity
to participate in a portfolio of long-term deep "market" discount and
original issue discount tax-exempt bonds with a greater diversification
than they might be able to acquire themselves. The objectives of each
Trust are to preserve capital and to provide interest income which, in the
opinions of bond counsel to the respective issuers given at the time of
original delivery of the Bonds, is, with certain exceptions, exempt from
regular federal income tax and with respect to the State Trust from
present income taxes of the State for which each State Trust is named for
residents thereof. Such interest income may, however, be subject to the
federal corporate alternative minimum tax and to state and local taxes in
other jurisdictions. Investors should be aware that there is no assurance
each Trust's objectives will be achieved because these objectives are
dependent on the continuing ability of the issuers of the Bonds to meet
their interest and principal payment requirements, on the continuing
satisfaction of the Bonds of the conditions required for the exemptions of
interest thereon from regular federal income tax and on the market value
of the Bonds, which can be affected by fluctuations in interest rates and
other factors.

Since disposition of Units prior to final liquidation of the Trust
may result in an investor receiving less than the amount paid for such
Units (see "Comparison of Public Offering Price, Sponsors' Repurchase
Price and Redemption Price"), the purchase of a Unit should be looked upon
as a long-term investment. Neither the Trust nor the Total Reinvestment
Plan is designed to be a complete investment program.

The Portfolios--General

All of the Bonds in each Trust were rated "A" or better by Standard
& Poor's Corporation or Moody's Investors Service, Inc. at the time
originally deposited in the Trust. For a list of the ratings of each Bond
on the Evaluation Date, see "Description of Portfolio" in Part A of this
Prospectus.

For information regarding (i) the number of issues in each Trust,
(ii) the range of fixed maturity of the Bonds, (iii) the number of issues
payable from the income of a specific project or authority and (iv) the
number of issues constituting general obligations of a government entity,
see "The Trust" and "Description of Portfolio" in Part A of this
Prospectus.

When selecting Bonds for each Trust, the following factors, among
others, were considered by the Sponsors on the Date of Deposit: (a) the
quality of the Bonds and whether such Bonds were rated "A" or better by
Standard & Poor's Corporation or Moody's Investors Service, Inc., (b) the
yield and price of the Bonds relative to other tax-exempt securities of
comparable quality and maturity, (c) income to the Certificateholders of
each Trust, (d) the diversification of each Trust's portfolio, as to
purpose of issue and location of issuer, taking into account the
availability in the market of issues which meet each Trust's quality,
rating, yield and price criteria and (e) the existence of "market"
discount and original issue discount. Subsequent to the Evaluation Date,
a Bond may cease to be rated or its rating may be reduced below that
specified above. Neither event requires an elimination of such Bond from
a Trust but may be considered in the Sponsors' determination to direct the
Trustee to dispose of the Bond. See "Portfolio Supervision." For an
interpretation of the bond ratings, see "Description of Bond Ratings."

Housing Bonds. Some of the aggregate principal amount of the Bonds
may consist of obligations of state and local housing authorities whose
revenues are primarily derived from mortgage loans to rental housing
projects for low to moderate income families. Since such obligations are
usually not general obligations of a particular state or municipality and
are generally payable primarily or solely from rents and other fees,
adverse economic developments including failure or inability to increase
rentals, fluctuations of interest rates and increasing construction and
operating costs may reduce revenues available to pay existing obligations.
See "Description of Portfolio" in Part A for the amount of rental housing
bonds contained therein.

Hospital Revenue Bonds. Some of the aggregate principal amount of
the Bonds may consist of hospital revenue bonds. Ratings of hospital
bonds are often initially based on feasibility studies which contain
projections of occupancy levels, revenues and expenses. Actual experience
may vary considerably from such projections. A hospital's gross receipts
and net income will be affected by future events and conditions including,
among other things, demand for hospital services and the ability of the
hospital to provide them, physicians' confidence in hospital management
capability, economic developments in the service area, competition,
actions by insurers and governmental agencies and the increased cost and
possible unavailability of malpractice insurance. Additionally, a major
portion of hospital revenue typically is derived from federal or state
programs such as Medicare and Medicaid which have been revised
substantially in recent years and which are undergoing further review at
the state and federal level.

Proposals for significant changes in the health care system and the
present programs for third party payment of health care costs are under
consideration in Congress and many States. Future legislation or changes
in the areas noted above, among other things, would affect all hospitals
to varying degrees and, accordingly, any adverse change in these areas may
affect the ability of such issuers to make payment of principal and
interest on such bonds. See "Description of Portfolio" in Part A for the
amount of hospital revenue bonds contained therein.

Nuclear Power Facility Bonds. Certain Bonds may have been issued in
connection with the financing of nuclear generating facilities. In view
of recent developments in connection with such facilities, legislative and
administrative actions have been taken and proposed relating to the
development and operation of nuclear generating facilities. The Sponsors
are unable to predict whether any such actions or whether any such
proposals or litigation, if enacted or instituted, will have an adverse
impact on the revenues available to pay the debt service on the Bonds in
the portfolio issued to finance such nuclear projects. See "Description
of Portfolio" in Part A for the amount of bonds issued to finance nuclear
generating facilities contained therein.

Mortgage Subsidy Bonds. Certain Bonds may be "mortgage subsidy
bonds" which are obligations of which all or a significant portion of the
proceeds are to be used directly or indirectly for mortgages on owner-
occupied residences. Section 103A of the Internal Revenue Code of 1954,
as amended, provided as a general rule that interest on "mortgage subsidy
bonds" will not be exempt from Federal income tax. An exception is
provided for certain "qualified mortgage bonds." Qualified mortgage bonds
are bonds that are used to finance owner-occupied residences and that meet
numerous statutory requirements. These requirements include certain
residency, ownership, purchase price and target area requirements, ceiling
amounts for state and local issuers, arbitrage restrictions and (for bonds
issued after December 31, 1984) certain information reporting,
certification, public hearing and policy statement requirements. In the
opinions of bond counsel to the issuing governmental authorities, interest
on all the Bonds in a Trust that might be deemed "mortgage subsidy bonds"
will be exempt from Federal income tax when issued. See "Description of
Portfolio" in Part A for the amount of mortgage subsidy Bonds contained
therein.

Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds." Under the Internal Revenue Code of 1986, as amended (the "Code")
(and under similar provisions of the prior tax law) "mortgage revenue
bonds" are obligations the proceeds of which are used to finance owner-
occupied residences under programs which meet numerous statutory
requirements relating to residency, ownership, purchase price and target
area requirements, ceiling amounts for state and local issuers, arbitrage
restrictions, and certain information reporting certification, and public
hearing requirements. There can be no assurance that additional federal
legislation will not be introduced or that existing legislation will not
be further amended, revised, or enacted after delivery of these Bonds or
that certain required future actions will be taken by the issuing
governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. If any portion
of the Bonds proceeds are not committed for the purpose of the issue,
Bonds in such amount could be subject to earlier mandatory redemption at
par, including issues of Zero Coupon Bonds (see "Discount and Zero Coupon
Bonds"). See "Description of Portfolio" in Part A for the amount of
mortgage revenue bonds contained therein.

Private Activity Bonds. The portfolio of the Trust may contain
other Bonds which are "private activity bonds" (often called Industrial
Revenue Bonds ("IRBs") if issued prior to 1987) which would be primarily
of two types: (1) Bonds for a publicly owned facility which a private
entity may have a right to use or manage to some degree, such as an
airport, seaport facility or water system and (2) facilities deemed owned
or beneficially owned by a private entity but which were financed with
tax-exempt bonds of a public issuer, such as a manufacturing facility or a
pollution control facility. In the case of the first type, bonds are
generally payable from a designated source of revenues derived from the
facility and may further receive the benefit of the legal or moral
obligation of one or more political subdivisions or taxing jurisdictions.
In most cases of project financing of the first type, receipts or revenues
of the Issuer are derived from the project or the operator or from the
unexpended proceeds of the bonds. Such revenues include user fees,
service charges, rental and lease payments, and mortgage and other loan
payments.

The second type of issue will generally finance projects which are
owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such
entities, and are solely dependent upon the creditworthiness of the
corporate user of the project or corporate guarantor.

The private activity bonds in the Trust have generally been issued
under bond resolutions, agreements or trust indentures pursuant to which
the revenues and receipts payable under the issuer's arrangements with the
users or the corporate operator of a particular project have been assigned
and pledged to the holders of the private activity bonds. In certain
cases a mortgage on the underlying project has been assigned to the
holders of the private activity bonds or a trustee as additional security.
In addition, private activity bonds are frequently directly guaranteed by
the corporate operator of the project or by another affiliated company.
See "Description of Portfolio" in Part A for the amount of private
activity bonds contained therein.

Litigation. Litigation challenging the validity under state
constitutions of present systems of financing public education has been
initiated in a number of states. Decisions in some states have been
reached holding such school financing in violation of state constitutions.
In addition, legislation to effect changes in public school financing has
been introduced in a number of states. The Sponsors are unable to predict
the outcome of the pending litigation and legislation in this area and
what effect, if any, resulting change in the sources of funds, including
proceeds from property taxes applied to the support of public schools, may
have on the school bonds in each Trust.

To the Sponsors' knowledge, there is no litigation pending as of the
date of this Prospectus with respect to any Bonds which might reasonably
be expected to have a material effect on a Trust other than that which is
discussed under "The Trust" or "The State Trusts." Such litigation as,
for example, suits challenging the issuance of pollution control revenue
bonds under recently enacted environmental protection statutes may affect
the validity of such Bonds or the tax-free nature of the interest thereon.
At any time after the date of this Prospectus, litigation may be
instituted on a variety of grounds with respect to the Bonds in the Trust.
The Sponsors are unable to predict whether any such litigation may be
instituted or, if instituted, whether it will have a material adverse
effect on a Trust.

Other Factors. The Bonds in the Trust, despite their optional
redemption provisions which generally do not take effect until 10 years
after the original issuance dates of such bonds (often referred to as "ten
year call protection"), do contain provisions which require the issuer to
redeem such obligations at par from unused proceeds of the issue within a
stated period. In recent periods of declining interest rates there have
been increased redemptions of bonds, particularly housing bonds, pursuant
to such redemption provisions. In addition, the Bonds in the Trusts are
also subject to mandatory redemption in whole or in part at par at any
time that voluntary or involuntary prepayments of principal on the
underlying collateral are made to the trustee for such bonds or that the
collateral is sold by the bond issuer. Prepayments of principal tend to
be greater in periods of declining interest rates; it is possible that
such prepayments could be sufficient to cause a bond to be redeemed
substantially prior to its stated maturity date, earliest call date or
sinking fund redemption date.

The Bonds may also be subject to other calls, which may be permitted
or required by events which cannot be predicted (such as destruction,
condemnation, or termination of a contract).

In 1976 the federal bankruptcy laws were amended so that an
authorized municipal debtor could more easily seek federal court
protection to assist in reorganizing its debts so long as certain
requirements were met. Historically, very few financially troubled
municipalities have sought court assistance for reorganizing their debts;
notwithstanding, the Sponsors are unable to predict to what extent
financially troubled municipalities may seek court assistance in
reorganizing their debts in the future and, therefore, what effect, if
any, the applicable federal bankruptcy law provisions will have on the
State Trusts.

The Trust may also include "moral obligation" bonds. Under statutes
applicable to such bonds, if an issuer is unable to meet its obligations,
the repayment of such bonds becomes a moral commitment but not a legal
obligation of the state or municipality in question. See "Portfolio" and
"The Trust" or "The State Trust" in Part A of this Prospectus for the
amount of moral obligation bonds contained in each Trust's portfolio.

Certain of the Bonds in each Trust are subject to redemption prior
to their stated maturity dates pursuant to sinking fund or call
provisions. A sinking fund is a reserve fund appropriated specifically
toward the retirement of a debt. A callable bond is one which is subject
to redemption or refunding prior to maturity at the option of the issuer.
A refunding is a method by which a bond is redeemed at or before maturity
from the proceeds of a new issue of bonds. In general, call provisions
are more likely to be exercised when the offering side evaluation of a
bond is at a premium over par than when it is at a discount from par. A
listing of the sinking fund and call provisions, if any, with respect to
each of the Bonds in each Trust is contained under the "Portfolio" for
such Trust in Part A of this Prospectus. Certificateholders will realize
a gain or loss on the early redemption of such Bonds, depending upon
whether the price of such Bonds is at a discount from or at a premium over
par at the time the Certificateholders Purchase their Units.

Neither the Sponsors nor the Trustee shall be liable in any way for
any default, failure or defect in any of the Bonds. Because certain of
the Bonds from time to time may be redeemed or will mature in accordance
with their terms or may be sold under certain circumstances, no assurance
can be given that each Trust will retain its present size and composition
for any length of time. The proceeds from the sale of a Bond in a Trust
or from the exercise of any redemption or call provision will be
distributed to Certificateholders of such Trust, except to the extent such
proceeds are applied to meet redemptions of Units. See "Trustee
Redemption."

Puerto Rico Bonds. Certain of the Bonds in the portfolio may be
general obligations and/or revenue bonds of issuers located in Puerto Rico
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 1991, approximately 87% of Puerto
Rico's exports were to the United States mainland, which was also the
source of 67% of Puerto Rico's imports. In fiscal 1991, Puerto Rico
experienced a $2,325.5 million 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, 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 1987, personal income has increased consistently in each
fiscal year. In fiscal 1991, aggregate personal income was $21.4 billion
($18.7 billion in 1987 prices) and personal income per capital was $6,038
($5,287 in 1987 prices). Real personal income showed a small decrease in
fiscal 1991 principally as a result of a decline in real transfer
payments. Real transfer payments grew at an above normal rate in fiscal
1990 due to the receipt of non-recurrent relief of federal funds for
hurricane Hugo victims. 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 1991 were $4.6
billion, of which $3.0 billion, or 65.4%, 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 rose to a record level
during fiscal 1991. Unemployment, although at the lowest level since the
late 1970s, remains above the average for the United States. In fiscal
1991, the unemployment rate in Puerto Rico was 15.2%. From fiscal 1987
through fiscal 1990, Puerto Rico experienced an economic expansion that
affected almost every sector of its economy and resulted in record levels
of employment. Factors behind this expansion include Commonwealth
sponsored economic development programs, the relatively stable prices of
oil imports, the continued growth of the United States economy, periodic
declines in exchange value of the United States dollar and the relatively
low cost borrowing during the period. Real gross product amounted to
approximately $19.2 billion in fiscal 1991, or .9% above the fiscal 1990
level. The economy continued its growth during fiscal 1991 but at a
slower rate. The Puerto Rico Planning Board's economic activity index, a
composite index for thirteen economic indicators, increased .4% for the
first eleven months of fiscal 1992 compared to the same period in fiscal
1991, which period showed a decrease of .5% over the same period in fiscal
1990. Growth in the Puerto Rico economy in fiscal 1993 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 and the cost of borrowing.

Discount and Zero Coupon Bonds

The Trust portfolios may contain original issue discount bonds. The
original issue discount, which is the difference between the initial issue
price of the Bonds and the face value, is deemed to accrue on a daily
basis and the accrued portion will be treated as tax-exempt interest
income for regular federal income tax purposes. Upon sale or redemption,
any gain realized that is in excess of the earned portion of original
issue discount will be taxable as capital gain. See "Tax Status." The
current value of an original issue discount bond reflects the present
value of its face amount at maturity. The market value tends to increase
more slowly in early years and in greater increments as the Bonds approach
maturity. Of these original issue discount bonds, a portion of the
aggregate principal amount of the Bonds in each Trust may be Zero Coupon
Bonds. Zero Coupon Bonds do not provide for the payment of any current
interest and provide for payment at maturity at face value unless sooner
sold or redeemed. The market value of Zero Coupon Bonds is subject to
greater fluctuations than coupon bonds in response to changes in interest
rates. Zero Coupon Bonds generally are subject to redemption at compound
accredited value based on par value at maturity. Because the issuer is
not obligated to make current interest payments, Zero Coupon Bonds may be
less likely to be redeemed than coupon bonds issued at a similar interest
rate. See "Description of Portfolios" in Part A for the aggregate
principal amount of original issue discount bonds in each Trust's
portfolio.

The Trust portfolios may also contain Bonds that were purchased at
deep "market" discount from par value at maturity. This is because the
coupon interest rates on the discount Bonds at the time they were
purchased and deposited in the Trust were lower than the current market
interest rates for newly issued bonds of comparable rating and type. At
the time of issuance the discount Bonds were for the most part issued at
then current coupon interest rates. The current returns (coupon interest
income as a percentage of market price) of discount bonds will be lower
than the current returns of comparably rated bonds of similar type newly
issued at current interest rates because discount bonds tend to increase
in market value as they approach maturity and the full principal amount
becomes payable. A discount bond held to maturity will have a larger
portion of its total return in the form of capital gain and less in the
form of tax-exempt interest income than a comparable bond newly issued at
current market rates. Gain on the disposition of a Bond purchased at a
market discount generally will be treated as ordinary income, rather than
capital gain, to the extent of accrued market discount. Discount bonds
with a longer term to maturity tend to have a higher current yield and a
lower current market value than otherwise comparable bonds with a shorter
term to maturity. If interest rates rise, the value of the bonds will
decrease; and if interest rates decline, the value of the bonds will
increase. The discount does not necessarily indicate a lack of market
confidence in the issuer.

THE STATE TRUSTS

California Trust

Because the Trust invests in California issues, it is susceptible to
political, economic, regulatory or other factors affecting issuers of
California municipal securities. The following information constitutes
only a brief summary of a number of the complex factors which may have an
impact on issuers of California municipal securities and does not purport
to be a complete or exhaustive description of all adverse conditions to
which issuers of California municipal securities may be subject.
Additionally, many factors, including national, economic, social and
environmental policies and conditions, which are not within the control of
such issuers, could have an adverse impact on the financial condition of
such issuers. The Trust cannot predict whether or to what extent such
factors or other factors may affect the issuers of California municipal
securities, the market value or marketability of such securities or the
ability of the respective issuers of such securities acquired by the Trust
to pay interest on or principal of such securities. Further, the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California. Such information is derived from sources that are generally
available to investors (such as official statements relating to the
offerings of California issuers) and is believed to be accurate.

Bonds in the California Trust include primarily debt obligations of
the State of California and its subdivisions issued to obtain funds for
various public purposes, including the construction of a wide range of
public facilities such as airports, bridges, highways, housing, hospitals,
mass transportation, schools, streets and water and sewer works. Other
purposes for which said Bonds may be issued include the refunding of
outstanding obligations, the obtaining of funds for general operating
expenses, or the obtaining of funds to lend to public or private
institutions for the construction of facilities such as educational,
hospital and housing facilities. In addition, certain types of bonds may
be issued by California public authorities to finance privately operated
housing facilities and certain local facilities for water supply, gas,
electricity or sewage or solid waste disposal.

California's economy is the largest among the 50 states and one of
the largest in the world. The State's July 1, 1992 population of over 31
million represents more than 12.0 percent of the total United States
population. Total employment is about 14.0 million, the majority of which
is in the service, trade and manufacturing sectors.

Recent California Economic Trends

Since the start of the 1990-91 Fiscal Year, California has faced the
worst economic, fiscal and budget conditions since the 1930s.
Construction, manufacturing (especially aerospace), exports and financial
services, among others, have all been severely affected. Since 1990 the
State has lost over 800,000 jobs. Although the national economic recovery
continued at a moderate pace in 1993, California has yet to share in the
economic upturn. However, the Commission on State Finance predicts that
the California economy will stabilize in 1994.

National Economic Trends

Economic data in late 1992 presented conflicting signals in the
United States economy. Indicators of recovery were offset by signs of
weakness. Reported growth in gross domestic product for the third quarter
of 1992 was not consistent with a decline in industrial production,
unchanged average weekly hours and a fractional gain in jobs. Looking
behind other indicators reveals as many areas of weakness as of strength.

While some regions reported modest gains in the economy, other areas
remain exceptionally weak, with no signs that the recession is over. The
reported improvement in consumer confidence late in 1992 was still too
tentative to conclude that consumers are ready to lead the economy out of
recession. Similar signals in the past have proved temporary.

There are continuing problems which suggest recovery will be slow at
best. Key measures such as new car sales and housing activity remain
depressed. The government sector also is likely to be a negative factor
in coming quarters.

Slow growth is forecast for the United States through the end of
1994, with real gross domestic product up 1.8% on average in 1993, with a
further gain of 2.6% in 1994. Personal income is expected to be up 4% in
1993, reflecting a marginal gain in jobs. Corporate profits are expected
to rise by 11%, however, reflecting the efforts of many businesses to
restructure their operations for greater efficiency and improved profits.

California Economy

After three years of recession, California's economy seems to be
stabilizing. However, economic signals remain mixed. The State's economy
faces several formidable barriers which likely will prolong the recession
and will inhibit the pace of recovery:

-- Defense budget cuts will continue to reduce employment in the
aerospace industry, while the major impact of military base closings
will be felt through 1995.

-- The construction and real estate sectors face a variety of
obstacles, including huge oversupplies of commercial office, retail
and hotel space, constraints on traditional financial institutions
relative to real estate lending and a severe price adjustment in the
upper half of the housing market.

-- California-based industries, such as high technology manufacturing,
are looking increasingly to lower cost areas of the nation and the
world when considering expansion sites.

-- Export markets are unlikely to provide much support to the State's
economy. Japan, Western Europe, Canada and Mexico are all affected
by the global slowdown, and California has a disproportionate share
of export oriented jobs in manufacturing and other industries as
well.

-- Cost containment efforts and "downsizing" are continuing in a
variety of service producing industries, including finance,
transportation, utilities and wholesale and retail trade.

The construction industry is projected to see only modest
improvement in homebuilding, to perhaps 115,000 units from last year's
estimated 95,000 unit volume. Even 1994's projected 144,000 figure is
significantly less than the quarter million unit years of the late 1980s.
Part of this sluggishness reflects demographic trends affecting the
apartment sector. But the improvement in single family housing is likely
to be dampened by the scarcity of construction finance and the relatively
sluggish job market. Given the supply imbalance in the commercial sector,
this year probably will see further declines in nonresidential
construction, with only the faint beginnings of recovery visible in 1994.

Manufacturing will continue to be held back by declines in defense
related aerospace as well as weakness in the market for commercial
aircraft. Electronics employment is expected to stabilize at 1992 year
end levels (implying further declines on an annual average basis) before
modest growth resumes in 1994. Construction related industries such as
lumber, furniture, fabricated metals and stone-clay-glass will reflect
weakness in the building industry this year, with modest improvement
likely in 1994. Nondurable goods, including apparel, chemicals, food
processing and plastics, should all benefit this year from the national
upturn.

Wholesale and retail trade experienced a modest pick up for the
second half of 1993 as sales begin to recover. Transportation and
utilities will continue to emphasize cost cutting, and at best will be
stable this year and next. The financial sector will continue to grapple
with declines in banking, partially offset by gains in nonbank financial
services. Real estate and insurance are expected to show little short-
term growth. By the end of 1994, most financial segments are expected to
be on the rise. Gains in service industries (mainly healthcare),
temporary agencies, motion picture production and amusements are expected
to continue.

With continued weakness in aerospace, construction and exports,
California's recovery will depend on national economic growth and the
gradual completion of the restructuring of the State's services economy.
Eventually underlying national growth trends may be sufficient to offset
the diminishing negative effects of defense cuts, real estate imbalances
and sluggish export markets.

The State's unemployment rate, which first broke into double digits
in November, 1992, remained near 10% throughout 1993, reflecting contained
labor force growth against stagnant employment. In 1994, the rate is
expected to fall slowly to 9.5% on an annual average basis.

In this job environment, income growth remained sluggish in 1993.
Once again, government transfer payments will be the leading source of
growth. In 1994, incomes are expected to rise by nearly 6%. Inflation in
the State, as measured by the California Consumer Price Index, has
remained under control.

The Department of Finance Bulletins for July, August and September,
1993 reported that California entered the fourth year of recession in
June, 1993 with few signs of any sustained turnaround in the economy,
which remains sluggish. In the year from August, 1992 to August, 1993 an
estimated 173,000 more jobs had been lost, principally in manufacturing.
A small gain in nonfarm employment in July, 1993 was offset by a larger
loss of 22,000 jobs in August, 1993. Unemployment has risen in the last
few months to 9.4% in September. Changes in the rate have been primarily
due to changes in the labor force; actual jobs and job-seekers have
declined in August, 1993. This was consistent with a report issued by the
Department of Finance indicating that California suffered a net loss of
150,000 residents to other states in the last fiscal year; overall
population still grew due to births and foreign immigration. Both
residential and nonresidential real estate construction remained in a
sustained slump, and were, in May, 1993 both at or close to the lowest
levels since the start of the recession.

Finally, the Department of Finance noted that California would be
hit hard by the latest round of Federal military base closings and force
realignments, which will be implemented over the remaining years of the
decade. California was estimated to have 22% of the nation's defense
spending, but might suffer 25-30% of the defense spending cuts over the
next five years. The Department also estimates that the recent Federal
Budget Reconciliation Act will have a disproportionate and negative impact
on California. California would suffer 19.5% of the outlay reductions,
which rely heavily on defense budget cuts, and the State, with many high
income taxpayers, will pay nearly 14.5% of the tax increases, compared to
12% of the nation's population.

State Finance

Since the start of the 1990-91 fiscal year, the State has faced the
worst economic, fiscal, and budget conditions since the 1930s. The
recession has seriously affected State tax revenues, which basically
mirror economic conditions. It also has caused increased expenditures for
health and welfare programs. The State also is facing a structural
imbalance in its budget with the largest programs supported by the General
Fund -- K-14 education, health, welfare and corrections -- growing at
rates significantly higher than the growth rates for the principal revenue
sources of the General Fund. As a result, the State entered a period of
chronic budget imbalance, with expenditures exceeding revenues for four of
the last five fiscal years. Revenues declined in 1990-91 over 1989-90,
for the first time since the 1930s. By June 30, 1992, the State's General
Fund had an accumulated deficit, on a budget basis, of approximately $2.2
billion.

A further consequence of the large imbalances over two consecutive
years was that the State used up all of its available cash resources. In
late June, 1992, the State was required to issue $475 million of short-
term revenue anticipation warrants to cover obligations coming due on
June 30. With the failure of the Governor and the Legislature to adopt a
budget for the 1992-93 fiscal year on time (to allow the State to carry
out its usual cash flow borrowing for the fiscal year), the shortfall of
cash forced the State Controller to issue interest-bearing "registered
warrants" in lieu of regular warrants redeemable for cash after July 1,
1992 to many State vendors, suppliers, and employees and to local
government agencies. Until the State Budget was adopted on September 2,
1992, the Controller issued more than one million registered warrants
totaling approximately $3.8 billion to pay valid obligations from the
prior fiscal year, and to pay continuing obligations after July 1 based on
special appropriations or court orders. Certain constitutionally mandated
obligations, such as debt service on bonds and revenue anticipation
warrants, were paid with available cash. Registered warrants had not been
issued by the State since the 1930s.

The 1992-93 Budget Act closed a "gap" of about $7.9 billion, but
budgeted a reserve at June 30, 1993 of only $28 million. However, the
Budget was based on economic forecasts and projections of major tax
sources. Shortly after the 1992-93 Budget Act was enacted, it became
evident that economic conditions in the State were not beginning to
improve in the second half of 1992, as assumed by the Department of
Finance's May, 1992 Revision economic estimates, which underlay the
Budget. This was exacerbated by enactment of an initiative measure in
November, 1992 which repealed a sales tax for certain candy, snack foods
and bottled water, reducing revenues by about $300 million for a full
fiscal year ($200 million in 1992-93). The Commission on State Finance
reported, in Fall 1992, that the 1992-93 Budget would be about $2.7
billion out of balance, with about $2.1 billion attributed to reduced
revenues. This was a "primary" forecast, which could be worse if the
economy fell into a deeper recession rather than continuing in a stagnant
mode. The Legislative Analyst issued a report consistent with the
Commission's predictions. In addition, certain lawsuits were filed
concerning implementation of the K-14 school financing portion of the
Budget Act.

The Governor's budget proposal for 1993-94, released on January 8,
1993 (the "1993-94 Governor's Budget"), confirmed the earlier forecasts
about the State's economy and the 1992-93 Budget. The Administration now
foresees recovery from the recession beginning only in 1993 or 1994.
Because of the weaker-than-forecast economy, the Administration predicts
that General Fund revenues in 1992-93 will fall $2.5 billion below
original estimates, to about $40.9 billion, over $1 billion below actual
revenues in 1992-92. The Administration predicts expenditures in 1992-93
will have been only about $30 million higher than original projections,
primarily because increased health and welfare costs will have been offset
by cost savings due to smaller than predicted school enrollments and
smaller tax relief costs. As of May, 1993, the Administration predicts
the General Fund will end fiscal year 1992-93 with a deficit of $2.7
billion, compared to a $2.2 billion deficit at June 30, 1992. The
Administration's deficit estimate assumes favorable resolution of a
dispute about school funding for 1992-93, favorable action on other school
financing adjustments proposed in the 1993-94 Governor's Budget and a $1.6
billion shift in property tax revenues.

On June 30, 1993, the Governor signed into law the 1993-94 state
budget. The adopted budget included the $2.6 billion shift of local
property taxes from cities, counties and special districts to school
districts.

Certain issuers of California Municipal Bonds receive subventions
from the State which are eligible to be used to make payments on said
Bonds. No prediction can be made as to what effect continued decreases in
subventions may have on the ability of some issuers to make such payments.

Subsequent Developments

By June 30, 1993, the General Fund had an accumulated deficit, on a
budgeted basis, of approximately $2.8 billion. In addition, the large
deficit over the previous three years had exhausted the State's available
cash reserves and resources. The Commission Staff estimated in its
December 1993 Update that revenues will fall short of budget projections
by $1.0 billion in fiscal year 1993-94, and that expenditures will exceed
budget projections by $700 million. The State is expected to end the year
with a deficit of $1.7 billion. Looking ahead to 1994-95, the Commission
Staff forecasts an operating deficit of $2.1 billion which, when added to
the 1993-94 operating deficit, will lead to a cumulative funding gap of
$3.8 billion by the end of that fiscal year. In an alternative forecast,
the Commission Staff predicts that this cumulative funding gap could
exceed $6.3 billion.

Because of California's continuing budget problems, the State's
General Obligation bonds were downgraded in 1992 by Moody's from Aa1 to Aa
and by Standard & Poor's from AA to A+. In February 1994, both ratings
companies stated that they were concerned about the deficit. While
neither company lowered the State's credit rating, Standard & Poor's
changed its credit outlook for California from "stable" to "negative" and
Moody's stated that it is unlikely that California will balance its budget
by 1995.

On January 17, 1994, Northridge, California experienced an
earthquake that registered 6.7 on the Richter Scale resulting in
significant property damage to private and public facilities throughout
Los Angeles and Ventura Counties, and to parts of Orange and San
Bernardino Counties. The affected portions of the counties were declared
to be federal and state disaster areas. The total damage is estimated to
be between $13 billion and $20 billion. The cost to federal, state and
local government is estimated to be $11.6 billion with the State's and
local governments' share estimated to be $1.9 billion and $135 million,
respectively. The Governor has proposed to pay for the State's share of
the cost with federal loans, bond issues, and unspecified spending cuts.
In addition, members of the State legislature have proposed raising taxes
to help cover a portion of the cost. The impact of the earthquake on
California's economy is uncertain.

The Governor's Budget for fiscal year 1994-95 proposed General Fund
expenditures of $38.8 billion for fiscal 1994-95, with projected revenues
of $41.1 billion. As proposed, the Governor's Budget would provide a
small reserve at the end of the 1994-95 fiscal year, and the retirement of
the budget deficit incurred at the end of the 1992-93 fiscal year.

The Governor's proposed 1994-95 Budget contains the largest
restructuring of the State-county relationship since Proposition 13,
comprising $5.4 billion involving the restructuring of existing revenue
sources and the responsibility for AFDC, Medi-Cal, foster care, in-home
supportive services, and alcohol and drug programs. The 1994-95 Proposed
Budget is balanced assuming $1.1 billion in additional federal funds for
health and welfare costs such as additional aid for undocumented
immigrants.

Constitutional and Statutory Limits on Spending and Taxes; Pending
Litigation

Article XIIIA of the California Constitution (which resulted from
the voter approved Proposition 13 in 1978) limits the taxing powers of
California public agencies. Article XIIIA provides that the maximum ad
valorem tax on real property cannot exceed 1 percent of the "full cash
value" of the property, and effectively prohibits the levying of any other
ad valorem property tax for general purposes. However, on May 3, 1986,
Proposition 46, an amendment to Article XIIIA, was approved by the voters
of the State of California creating a new exemption under Article XIIIA
permitting an increase in ad valorem taxes on real property in excess of 1
percent for bonded indebtedness approved by two-thirds of the voters
voting on the proposed indebtedness. "Full cash value" is defined as "the
County Assessor's valuation of real property as shown on the 1975-76 tax
bill under "full cash value" or, thereafter, the appraised value of real
property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment." The "full cash value" is subject to
annual adjustment to reflect increases (not to exceed 2 percent) or
decreases in the consumer price index or comparable local data, or to
reflect reductions in property value caused by damage, destruction or
other factors.

The State is subject to an annual appropriations limit imposed by
Article XIIIB of the State Constitution (the "Appropriations Limit").
Article XIIIB prohibits the State from spending "appropriations subject to
limitation" in excess of the Appropriations Limit. Article XIIIB,
originally adopted in 1979, was modified substantially by Propositions 98
and 111 in 1988 and 1990, respectively. "Appropriations subject to
limitation," with respect to the State, are authorizations to spend
"proceeds of taxes," which consist of tax revenues, and certain other
funds, including proceeds from regulatory licenses, user charges or other
fees to the extent that such proceeds exceed "the cost reasonably borne by
that entity in providing the regulation, product or service," but
"proceeds of taxes" exclude most state subventions to local governments,
tax refunds and some benefit payments such as unemployment insurance. No
limit is imposed on appropriations of funds which are not "proceeds of
taxes," such as reasonable user charges or fees, and certain other non-tax
funds.

Not included in the Appropriations Limit are appropriations for the
debt service costs of bonds existing or authorized by January 1, 1979, or
subsequently authorized by the voters, appropriations required to comply
with mandates of courts or the federal government and, pursuant to
Proposition 111, appropriations for qualified capital outlay projects and
appropriations of revenues derived from any increase in gasoline taxes and
motor vehicle weight fees above January 1, 1990 levels. In addition, a
number of recent initiatives were structured or proposed to create new tax
revenues dedicated to certain specific uses, with such new taxes expressly
exempted from the Article XIIIB limits (e.g., increased cigarette and
tobacco taxes enacted by Proposition 99 in 1988). The Appropriations
Limit may also be exceeded in cases of emergency. However, unless the
emergency arises from civil disturbance or natural disaster declared by
the Governor, and the appropriations are approved by two-thirds of the
Legislature, the Appropriations Limit for the next three years must be
reduced by the amount of the excess.

The State's Appropriations Limit in each year is based on the limit
for the prior year, adjusted annually for chances in California per capita
personal income and changes in population, and adjusted, when applicable,
for any transfer of financial responsibility of providing services to or
from another unit of government. The measurement of change in population
is a blended average of statewide overall population growth, and change in
attendance at local school and community college ("K-14") districts. As
amended by Proposition 111, the Appropriations Limit is tested over
consecutive two-year periods. Any excess of the aggregate "proceeds of
taxes" received over such two-year period above the combined
Appropriations Limits for those two years is divided equally between
transfers to K-14 districts and refunds to taxpayers.

As originally enacted in 1979, the State's Appropriations Limit was
based on 1978-79 Fiscal Year authorizations to expend proceeds of taxes
and was adjusted annually to reflect changes in cost of living and
population (using different definitions, which were modified by
Proposition 111). Starting in the 1990-91 Fiscal Year, the State's
Appropriations Limit will be recalculated by taking the actual 1986-87
limit, and applying the annual adjustments as if Proposition 111 had been
in effect. This recalculation has resulted in an increase of $1 billion
to the State's Appropriations Limit in 1990-91. The Legislature has
enacted legislation to implement Article XIIIB which defines certain terms
used in Article XIIIB and sets forth the methods for determining the
Appropriations Limit. Government Code Section 7912 requires an estimate
of the Appropriations Limit to be included in the annual budget proposed
by the Governor in January of each year for the next fiscal year (the
"Governor's Budget"), and thereafter to be subject to the budget process
and established in the Budget Act.

The following table shows the State's Appropriations Limit for the
past four fiscal years, and the current fiscal year.

State Appropriations Limit
(Millions)

Fiscal Years
1989-90 1990-91 1991-92 1992-93 1993-94*

State Appropriations
Limit........ $ 29,318 $ 32,703 $ 34,233 $ 35,010 $ 36,599
Appropriations Subject
to Limit... -27,700 -25,191 -29,078 -30,739 -33,164
Amount (Over)/Under
Limit......... $ 1,618 $ 7,512 $ 5,155 $ 4,271 $ 3,435

* Estimate

SOURCE: State of California, Department of Finance

<PAGE>

Proposition 98

On November 8, 1988, voters of the State approved Proposition
98, a combined initiative constitutional amendment and statute called the
"Classroom Instructional Improvement and Accountability Act". Proposition
98 changed State funding of public education below the university level,
and the operation of the State Appropriations Limit, primarily by
guaranteeing K-14 schools a minimum share of General Fund revenues. Under
Proposition 98 (as modified by Proposition III, discussed below, which was
enacted on June 5, 1990), K-14 schools are guaranteed the greater of
1. 40.3 percent of General Fund revenues (the "first test"), 2. the amount
appropriated to K-14 schools in the prior year, adjusted for changes in
the cost of living (measured as in Article XIIIB by reference to
California per capita personal income) and enrollment (the "second test"),
or 3. a third test, which would replace the second test in any year when
the percentage growth in per capita General Fund revenues from the prior
year plus one half of one percent is less than the percentage growth in
California per capita personal income. Under the third test, schools
would receive the amount appropriated in the prior year adjusted for
changes in enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If the third test is used in any
year, the difference between the third test and the second test would
become a "credit" to schools which would be the basis of payments in
future years when per capita General Fund revenue growth exceeds per
capita personal income growth.

Proposition 98 permits the Legislature by two-thirds vote of
both houses, with the Governor's concurrence, to suspend the K-14 schools'
minimum funding formula for a one-year period. In the fall of 1989, the
Legislature and the Governor utilized this provision to avoid having 40.3
percent of revenues generated by a special supplemental sales tax enacted
for earthquake relief go to K-14 schools. Proposition 98 also contains
provisions transferring certain State tax revenues in excess of the
Article XIIIB limit to K-14 schools.

In 1992-93 and 1993-94, the State met part of its Proposition 98
commitment to education through $1.8 billion in off-balance sheet loans.
These loans were held illegal by a lower court decision in California
Teachers' Association v. Gould. If this decision is upheld on appeal,
schools would not be required to repay these loans and the 1993-94 year-
end deficit would increase by $1.8 billion.

Article XIIIA, Article XIIIB and Proposition 98 were each
adopted as measures that qualified for the ballot pursuant to California's
initiative process. Other initiative measures could be adopted in the
future, affecting the availability of revenues to pay certain of the
Bonds.

Recent Initiatives. In July 1991, California increased taxes by
adding two new marginal tax rates, at 10% and 11%, effective for tax years
1991 through 1995. After 1995, the maximum personal income tax rate is
scheduled to return to 9.3%, and the alternative minimum tax rate is
scheduled to drop from 8.5% to 7%. In addition, legislation in July 1991
raised the sales tax by 1.25%, of which 0.5% was a permanent addition.
This tax increase will be cancelled if a court rules that such tax
increase violates any constitutional requirements. Although 0.5% of the
State tax rate was scheduled to expire on June 30, 1993, such amount was
extended for six months for the benefit of counties and cities. On
November 2, 1993, voters approved extension of this 0.5% levy as a
permanent source of funding for local government.

The November 2, 1993 special election ballot also contained an
initiative constitutional amendment providing parental choice regarding
education. This initiative would have required the State to allocate
every school-age child a scholarship in an amount equal to at least 50% of
the prior year's per-pupil State and local government expenditure for
kindergarten through twelfth grade education. Such scholarships would
have been redeemable by public or private schools. If passed, the
parental choice initiative could have threatened the fiscal stability of
any school district in which a significant number of students withdraw and
enroll elsewhere. Although the initiative failed, other parental choice
initiatives have already been filed in an attempt to qualify them for
future voter consideration.

Pending Litigation. Three court cases may further upset
California's budgetary balance; one concerning the medically indigent and
Medi-Cal funding, a second concerning employee pensions, and a third on
California's unitary method of taxing multinational companies. In Kinlaw
v. State of California, the State faced possible retroactive reimbursement
to counties of $2-$3 billion for Medi-Cal costs for medically indigent
adults. The ruling could have added annual operating costs of $500-$700
million and would have precluded the State-county realignment of
responsibilities. On August 30, 1991, the California Supreme Court
overturned the case on procedural grounds; however, a case of similar
scope and substance regarding employee pensions, San Bernardino County v.
State of California, is pending in the Court of Appeals. On November 1,
1993, the United States Supreme Court granted certiorari to hear two
consolidated cases dealing with the validity of California's prior method
of taxing multinational corporations under a "unitary" method of
accounting for their worldwide earnings. Barclays Bank PLC v. Franchise
Tax Board concerns foreign corporations, and Colgate-Palmolive v.
Franchise Tax Board concerns domestic corporations. California courts
have upheld the State's unitary method of taxation, which has since been
modified by the Legislature. If the Court does not uphold the State's
prior method of taxation, the State could be liable for tax refunds and
will be unable to collect taxes previously assessed, with an aggregate
impact of $3.5-$4 billion.

Additionally, in a case called ABC Unified School District, et
al. v. State of California, some 130 public school districts and various
taxpayers filed an action in 1991 seeking a declaration that the State'
system of financing K-12 public education is unconstitutional. The suit
claims that alleged inequalities in per-pupil expenditures among school
districts throughout the State are violative of equal protection
guarantees and the public education guarantee of the State Constitution.
The case is pending in the trial court. It is impossible to predict when
or how this case will be resolved, or how a decision in favor of the
plaintiff's claims may affect the State's financial obligations.

In the spring of 1991, the Richmond Unified School District
("RUSD") Board of Directors attempted to end classes six weeks early
because of a fiscal crisis. In response to lawsuits, a lower court judge,
in a case called Butt v. State of California, ordered the State, over
objections from the Governor, to provide funding to allow the school year
to be completed, and an emergency loan was arranged by the State
Controller. On appeal, the California Supreme Court in late December,
1992 upheld the lower court's action, ruling that the State Constitution's
guarantee of public education required the State to ensure a full year's
education in all school districts. The Court, however, overturned a
portion of the original order relating to the source of funds for RUSD's
emergency loan; the decision leaves unclear just where the State must find
funds to make any future loans of this kind.

City of Alhambra, et al. v. Los Angeles County
Auditor/Controller, et al. involves the constitutionality of the 1992-93
Budget Act-related legislation which redirects approximately $1.3 billion
in local tax revenues from localities to schools. The case was originally
filed with the California Supreme Court. The Court denied the petition
and the case was refiled in the Los Angeles Superior Court, where it is
now pending. Various constitutional arguments concerning equal
protection, two-thirds voter approval for tax increases, interference with
local government fiscal powers and violation of school funding
restriction, are raised.

Finally, in Parr v. State of California, a complaint was filed
in federal court claiming that payment of wages in registered warrants
violated the Fair Labor Standards Act ("FLSA"). The federal court held
that the issuance of registered warrants does violate the FLSA. The next
phase of the trial will focus on the issue of damages. The maximum amount
of damages is the amount of the salary originally owed or approximately
$350 million.

Florida Trust

The State Economy. In 1980 the State of Florida (the "State")
ranked seventh among the fifty states with a population of 9.7 million
people. The State has grown dramatically since then and, as of April 1,
1992, ranked fourth with an estimated population of 13.4 million, an
increase of approximately 11.5% since 1980. Since 1982 migration has been
fairly steady with an average of 252,000 new residents each year. Since
1982 the prime working age population (18-44) has grown at an average
annual rate of 3.3%. The share of Florida's total working age population
(18-59) to total state population is approximately 54%. Non-farm
employment has grown by approximately 57.9% since 1980. The service
sector is Florida's largest employment sector, presently accounting for
31.7% of total non-farm employment. Manufacturing jobs in Florida are
concentrated in the area of high-tech and value added sectors, such as
electrical and electronic equipment as well as printing and publishing.
Job gains in Florida's manufacturing sector have exceeded national
averages, increasing by 8.4% between 1980 and 1992. Foreign trade has
contributed significantly to Florida's employment growth. Florida's
dependence on highly cyclical construction and construction related
manufacturing has declined. Total contract construction employment as a
share of total non-farm employment has fallen from 10% in 1973, to 7% in
1980, to 5% in 1992. Although the job creation rate for the State of
Florida since 1980 is over two times the rate for the nation as a whole,
since 1989 the unemployment rate for the State has risen faster than the
national average. The average rate of unemployment for Florida since 1980
is 6.5%, while the national average is 7.1%. Because Florida has a
proportionately greater retirement age population, property income
(dividends, interest and rent) and transfer payments (social security and
pension benefits) are a relatively more important source of income. In
1992, Florida employment income represented 61% of total personal income
while nationally, employment income represented 72% of total personal
income.

On August 24, 1992, Hurricane Andrew passed through South
Florida. Property damage is estimated to be between $20 and $30 billion,
of which $15 billion is estimated to be insured classes. The office of
the Governor has estimated that the costs to State and local governments
for emergency services and damage to public facilities and infrastructure
are approximately $1 billion. The Governor's office has estimated lost
State revenue to be between $21.5 million and $38.5 million, including
utilities taxes, lottery revenues, tolls and State Park fees. For the
local governments in Dade County and the Dade County School Board, lost
revenues are estimated to be between $155.9 million and $258.6 million as
a result of reduction in property values.

The U.S. Congress has passed a disaster aid package which will
provide $10.6 billion in aid to South Florida. This includes Federal
Emergency Management Agency ("FEMA") payments to State and local
governments for repair to facilities owned by local governments, schools
and universities, additional costs for debris removal and public safety
services related to the hurricane and grants to State and local
governments to make up for lost revenue. Also included is funding for
grants and loans to individuals for small business assistance, economic
development, housing allowance and repairs. The State will be required to
match the FEMA funding for those grants and loans with $32.5 million of
State and local money. FEMA also has an Individual and Family Grants
Program which is available to uninsured and under-insured households
through which up to $11,500 per household is available to help cover
losses. The State will be required to match this program 25% to FEMA's
75%. At this time, the State estimates its matching requirement will not
exceed $100 million.

The Florida Revenue Estimating Conference has estimated
additional non-recurring General Revenues totalling $645.8 million during
fiscal years 1992-93 and 1993-94 and 1994-95 from increased economic
activity following the hurricane. In a special session of the Legislature
held December 9 to December 11, 1992, the Legislature enacted a law that
sets aside an estimated $630.4 million of the $645.8 million to be used by
State and local government agencies to defray a wide array of expenditures
related to Hurricane Andrew.

The ability of the State and its local units of government to
satisfy the Debt Obligations may be affected by numerous factors which
impact on the economic vitality of the State in general and the particular
region of the State in which the issuer of the Debt Obligations is
located. South Florida is particularly susceptible to international trade
and currency imbalances and to economic dislocations in Central and South
America, due to its geographical location and its involvement with foreign
trade, tourism and investment capital. The central and northern portions
of the State are impacted by problems in the agricultural sector,
particularly with regard to the citrus and sugar industries. Short-term
adverse economic conditions may be created in these areas, and in the
State as a whole, due to crop failures, severe weather conditions or other
agriculture-related problems. The State economy also has historically
been somewhat dependent on the tourism and construction industries and is
sensitive to trends in those sectors.

The State Budget. The State operates under a biennial budget
which is formulated in even numbered years and presented for approval to
the Legislature in odd numbered years. A supplemental budget request
process is utilized in the even numbered years for refining and modifying
the primary budget. Under the State Constitution and applicable statutes,
the State budget as a whole, and each separate fund within the State
budget, must be kept in balance from currently available revenues during
each State fiscal year. (The State's fiscal year runs from July 1 through
June 30.) The Governor and the Comptroller of the State are charged with
the responsibility of ensuring that sufficient revenues are collected to
meet appropriations and that no deficit occurs in any State fund.

The financial operations of the State covering all receipts and
expenditures are maintained through the use of three types of funds: the
General Revenue Fund, Trust Funds and Working Capital Fund. The majority
of the State's tax revenues are deposited in the General Revenue Fund and
moneys in the General Revenue Fund are expended pursuant to appropriations
acts. In fiscal year 1992-93, expenditures for education, health and
welfare and public safety represented approximately 49%, 30% and 11%,
respectively, of expenditures from the General Revenue Fund. The Trust
Funds consist of moneys received by the State which under law or trust
agreement are segregated for a purpose authorized by law. Revenues in the
General Revenue Fund which are in excess of the amount needed to meet
appropriations may be transferred to the Working Capital Fund.

State Revenues. Estimated General Revenues and Working Capital
Fund revenue of $12,959.2 million for 1993-94 (excluding Hurricane Andrew
related revenues and expenses) represent an increase of 7.5% over revenues
for 1992-93. Estimated Revenue for 1994-95 of $13,944 million (excluding
Hurricane Andrew impacts) represents an increase of 7.6% over 1993-1994.

In fiscal year 1992-93, the State derived approximately 62% of
its total direct revenues for deposit in the General Revenue Fund, Trust
Funds and Working Capital Fund from State taxes. Federal grants and other
special revenues accounted for the remaining revenues. The greatest
single source of tax receipts in the State is the 6% sales and use tax.
For the fiscal year ended June 30, 1993, receipts from the sales and use
tax totaled $9,426 million, an increase of approximately 12.5% over fiscal
year 1991-92. This amount includes non-recurring increases attributable
to the rebuilding and reconstruction following the hurricane. This amount
includes non-recurring increases attributable to the rebuilding and
reconstruction following the hurricane. The second largest source of
State tax receipts is the tax on motor fuels including the tax receipts
distributed to local governments. Receipts from the taxes on motor fuels
are almost entirely dedicated to trust funds for specific purposes or
transferred to local governments and are not included in the General
Revenue Fund. For the fiscal year ended June 30, 1992, collections of
this tax totaled $1,475.5 million.

The State currently does not impose a personal income tax.
However, the State does impose a corporate income tax on the net income of
corporations, organizations, associations and other artificial entities
for the privilege of conducting business, deriving income or existing
within the State. For the fiscal year ended June 30, 1993, receipts from
the corporate income tax totaled $846.6 million, an increase of
approximately 5.6% from fiscal year 1991-92. The Documentary Stamp Tax
collections totaled $639 million during fiscal year 1992-93, or
approximately 27% over fiscal year 1991-92. The Alcoholic Beverage Tax,
an excise tax on beer, wine and liquor totaled $44.2 million in fiscal
year 1992-93, an increase of 1.6% from fiscal year 1991-92. The Florida
lottery produced sales of $2.13 billion of which $10.4 million was used
for education in fiscal year 1991-92.

While the State does not levy ad valorem taxes on real property
or tangible personal property, counties, municipalities and school
districts are authorized by law, and special districts may be authorized
by law, to levy ad valorem taxes. Under the State Constitution, ad
valorem taxes may not be levied by counties, municipalities, school
districts and water management districts in excess of the following
respective millages upon the assessed value of real estate and tangible
personal property: for all county purposes, ten mills; for all municipal
purposes, ten mills; for all school purposes, ten mills; and for water
management purposes, either 0.05 mill or 1.0 mill, depending upon
geographic location. These millage limitations do not apply to taxes
levied for payment of bonds and taxes levied for periods not longer than
two years when authorized by a vote of the electors. (Note: one mill
equals one-tenth of one cent.)

The State Constitution and statutes provide for the exemption of
homesteads from certain taxes. The homestead exemption is an exemption
from all taxation, except for assessments for special benefits, up to a
specific amount of the assessed valuation of the homestead. This
exemption is available to every person who has the legal or equitable
title to real estate and maintains thereon his or her permanent home. All
permanent residents of the State are currently entitled to a $25,000
homestead exemption from levies by all taxing authorities, however, such
exemption is subject to change upon voter approval.

On November 3, 1992, the voters of the State of Florida passed
an amendment to the Florida Constitution establishing a limitation on the
annual increase in assessed valuation of homestead property commencing
January 1, 1994, of the lesser of 3% or the increase in the Consumer Price
Index during the relevant year, except in the event of a sale thereof
during such year, and except as to improvements thereto during such year.
The amendment did not alter any of the millage rates described above.

Since municipalities, counties, school districts and other
special purpose units of local governments with power to issue general
obligation bonds have authority to increase the millage levy for voter
approved general obligation debt to the amount necessary to satisfy the
related debt service requirements, the amendment is not expected to
adversely affect the ability of these entities to pay the principal of or
interest on such general obligation bonds. However, in periods of high
inflation, those local government units whose operating millage levies are
approaching the constitutional cap and whose tax base consists largely of
residential real estate, may, as a result of the above-described
amendment, need to place greater reliance on non-ad valorem revenue
sources to meet their operating budget needs.

State General Obligation Bonds and State Revenue Bonds. The
State Constitution does not permit the State to issue debt obligations to
fund governmental operations. Generally, the State Constitution
authorizes State bonds pledging the full faith and credit of the State
only to finance or refinance the cost of State fixed capital outlay
projects, upon approval by a vote of the electors, and provided that the
total outstanding principal amount of such bonds does not exceed 50% of
the total tax revenues of the State for the two preceding fiscal years.
Revenue bonds may be issued by the State or its agencies without a vote of
the electors only to finance or refinance the cost of State fixed capital
outlay projects which are payable solely from funds derived directly from
sources other than State tax revenues.

Exceptions to the general provisions regarding the full faith
and credit pledge of the State are contained in specific provisions of the
State Constitution which authorize the pledge of the full faith and credit
of the State, without electorate approval, but subject to specific
coverage requirements, for: certain road projects, county education
projects, State higher education projects, State system of Public
Education and construction of air and water pollution control and
abatement facilities, solid waste disposal facilities and certain other
water facilities.

Local Bonds. The State Constitution provides that counties,
school districts, municipalities, special districts and local governmental
bodies with taxing powers may issue debt obligations payable from ad
valorem taxation and maturing more than 12 months after issuance, only
(i) to finance or refinance capital projects authorized by law, provided
that electorate approval is obtained; or (ii) to refund outstanding debt
obligations and interest and redemption premium thereon at a lower net
average interest cost rate.

Counties, municipalities and special districts are authorized to
issue revenue bonds to finance a variety of self-liquidating projects
pursuant to the laws of the State, such revenue bonds to be secured by and
payable from the rates, fees, tolls, rentals and other charges for the
services and facilities furnished by the financed projects. Under State
law, counties and municipalities are permitted to issue bonds payable from
special tax sources for a variety of purposes, and municipalities and
special districts may issue special assessment bonds.

Bond Ratings. General obligation bonds of the State are
currently rated Aa by Moody's Investors Service and AA by Standard &
Poor's Corporation.

Litigation. Due to its size and its broad range of activities,
the State (and its officers and employees) are involved in numerous
routine lawsuits. The managers of the departments of the State involved
in such routine lawsuits believed that the results of such pending
litigation would not materially affect the State's financial position. In
addition to the routine litigation pending against the State, its officers
and employees, the following lawsuits and claims are also pending:

A. In a suit, plaintiff has sought title to Hugh Taylor Birch
State Recreation Area by virtue of a reverter clause in the deed from Hugh
Taylor Birch to the State. A final judgment at trial was entered in favor
of the State. The case has been appealed to the Fourth District Court of
Appeal. The Department of Natural Resources anticipates the area will
remain in State lands; however, in the event the court should rule in
favor of the plaintiff, the State is subject to a loss of real property
valued at approximately $400 million.

B. In a suit, the Florida Supreme Court prospectively
invalidated a tax preference methodology under former Sections 554.06 and
565.12 of the Florida Statutes (1985). This ruling was appealed to the
United States Supreme Court which reversed the State Supreme Court and
remanded the matter back to the State court. The Supreme Court's opinion
suggested that one of the State's options for correcting the
constitutional problems would be to assess and collect back taxes at the
higher rates applicable to those who were ineligible for the tax
preference from all taxpayers who had benefitted from the tax preference
during the contested tax period. The State chose to seek a recovery of
taxes from those who benefitted from the tax preference by requiring them
to pay taxes at the higher rate that applied to out-of-state manufacturers
and distributors. The Florida Supreme Court remanded the matter to the
Circuit Court for the 2nd Judicial Circuit to hear arguments on the method
chosen by the State to provide a clear and certain remedy. The trial
court's decision against the State is on appeal at the First District
Court of Appeal. With the exception of two parties, all parties have
settled their claims with the State. Should an unfavorable outcome result
in this case, approximately $33 million may be refunded.

C. A class action suit brought against the Department of
Corrections, alleging race discrimination in hiring and employment
practices, originally went to trial in 1982 with the Department prevailing
on all claims except a partial summary judgment to a plaintiff sub-class
claiming a discriminatory impact on hiring caused by an examination
requirement. Jurisdictional aspects of the testing issue were appealed to
the Eleventh Circuit Court of Appeals which vacated the trial court's
order and was upheld by the United States Supreme Court. The district
court consolidated three successor lawsuits with this case and entered a
final judgment in favor of the State. This judgment, however, has been
appealed to the Eleventh Circuit Court of Appeals. Should the department
fail in future appeals, the liability of the State for back pay and other
monetary relief could exceed $40 million.

D. Complaints were filed in the Second Judicial Circuit seeking
a declaration that Sections 624.509, 624.512 and 624.514, F.S. (1988)
violate various U.S. and Florida Constitutional provisions. Relief was
sought, in the form of a tax refund. The Florida Supreme Court reversed
the trial court in favor of the State. Plaintiffs have petitioned for
certiorari with the United States Supreme Court. The State has settled
all outstanding litigation in this area. Similar issues had been raised
in the following cases which were part of the settlement: Ford Motor
Company v. Bill Gunter, Case No. 86-3714, 2nd Judicial Circuit, and
General Motors Corporation v. Tom Gallagher, Case Nos. 90-2045 and
88-2925, 2nd Judicial Circuit, where the plaintiffs are challenging
Section 634.131, F.S., which imposes taxes on the premiums received for
certain motor vehicle service agreements. Current estimates indicate that
the State's potential refund exposure unclear the remaining refund
applications yet to be denied is approximately $150 million. However, the
State hopes that refund exposure will be reduced as these refund requests
begin to be denied based upon the Florida Supreme Court decision in the
instant case.

E. In two cases, plaintiffs have sought approximately $25
million in intangible tax refunds basad partly upon claims that Florida's
intangible tax statutes are unconstitutional.

F. A lawsuit was filed against the Department of Health and
Rehabilitative Services (DHRS) and the Comptroller of the State of Florida
involving a number of issues arising out of the implementation of a DHRS
computer system and seeking declaratory relief and money damages. The
estimated potential liability to the state is in excess of $40 million.

G. Plaintiffs in a case have sought a declaration that
statutory assessments on certain hospital net revenues are invalid,
unconstitutional, and unenforceable and request temporary and permanent
injunctive relief be granted prohibiting the enforcement or collection of
the assessment and that all monies paid to the State by the plaintiffs and
the class members within the four years preceding the filing of the action
be reimbursed by the defendants with interest. An unfavorable outcome to
this case could result in the possibility of refunds exceeding $50
million.

H. In an inverse condemnation suit claiming that the actions of
the State constitute a taking of certain leases for which compensation is
due, the Circuit Judge granted the State's motion for summary judgment
finding that the State had not deprived plaintiff of any royalty rights
they might have. Plaintiff has appealed. Additionally, plaintiff's
request for a drilling permit was rejected after administrative
proceedings before the Department of Environmental Protection. Plaintiff
is expected to challenge the decision.

I. In an inverse condemnation suit alleging the regulatory
taking of property without compensation in the Green Swamp Area of
Critical State Concern, discovery is concluding and a motion for a summary
judgment will likely be made. If the judgment should be for the
plaintiff, condemnation procedures would be instituted with costs of $30
million, plus interest from 1975.

J. In two cases, plaintiffs have challenged the constitu-
tionality of the $295 fee imposed on the issuance of certificates of title
for vehicles previously titled outside the State. The circuit court
granted summary judgment to the plaintiff, finding that the fee violated
the Commerce Clause of the U.S. Constitution. The Court enjoined further
collection of the fee and has ordered refunds to all those who have paid
since the statute came into existence in mid-1991. The State has noticed
an appeal and is entitled to a stay of the lower court ruling's
effectiveness, thus the fee continues to be collected during the appeal.
The potential refund exposure may be in excess of $100 million.

K. Santa Rosa County has filed a complaint for declaratory
relief against the State requesting the Circuit Court to: (1) find that
Section 206.60(2)(a), F.S., does not allow the Department to deduct
administrative expenses unrelated to the collection, administration, and
distribution of the county gas tax; and (2) order the department to pay
Santa Rosa County all moneys shown to have been unlawfully deducted from
the motor fuel tax revenues plus interest. All hearings in the case have
been postponed until early 1994. This case seeks refunds of approximately
$45 million.

L. Lee Memorial Hospital has contested the calculation of its
disproportionate share payment for the 1992-93 State fiscal year. An
unfavorable outcome to this case could result in a possible settlement of
$20 to $30 million.

M. A lawsuit has challenged the freezing of nursing home
reimbursement rates for the period January 1, 1990 through July 1, 1990.
The First District Court of Appeals ruled against the Agency for Health
Care Administration (AHCA). The AHCA has petitioned the Florida Supreme
Court for review of this decision. An unfavorable outcome to this case
could result in a potential liability of $40 million.

Summary. Many factors including national, economic, social and
environmental policies and conditions, most of which are not within the
control of the State or its local units of government, could affect or
could have an adverse impact on the financial condition of the State.
Additionally, the limitations placed by the State Constitution on the
State and its local units of government with respect to income taxation,
ad valorem taxation, bond indebtedness and other matters discussed above,
as well as other applicable statutory limitations, may constrain the
revenue-generating capacity of the State and its local units of government
and, therefore, the ability of the issuers of the Bonds to satisfy their
obligations thereunder.

The Sponsors believe that the information summarized above
describes some of the more significant matters relating to the Florida
Trust. For a discussion of the particular risks with each of the Debt
Obligations, and other factors to be considered in connection therewith,
reference should be made to the Official Statement and other offering
materials relating to each of the Debt Obligations included in the
portfolio of the Florida Trust. The foregoing information regarding the
State, its political subdivisions and its agencies and authorities
constitutes only a brief summary, does not purport to be a complete
description of the matters covered and is based solely upon information
drawn from official statements relating to offerings of general obligation
bonds of the State. The Sponsors and their counsel have not independently
verified this information, and the Sponsors have no reason to believe that
such information is incorrect in any material respect. None of the
information presented in this summary is relevant to Puerto Rico or Guam
Debt Obligations which may be included in the Florida Trust.

For a general description of the risks associated with the
various types of Debt Obligations comprising the Florida Trust, see the
discussion under "The Portfolios--General", above.

New York Trust

New York City. New York City (the "City"), with a population of
approximately 7.3 million, is an international center of business and
culture. Its non-manufacturing economy is broadly based, with the banking
and securities, life insurance, communications, publishing, fashion
design, retailing and construction industries accounting for a significant
portion of the City's total employment earnings. Additionally, the City
is the nation's leading tourist destination. The City's manufacturing
activity is conducted primarily in apparel and publishing.

The national economic recession which began in July 1990 has
adversely impacted the City harder than almost any other political
jurisdiction in the nation. As a result, the City, with approximately 3
percent of national employment, has lost approximately 20 percent of all
U.S. jobs during the recent economic downturn and, consequently, has
suffered erosion of its local tax base. In total, the City private sector
employment has plummeted by approximately 360,000 jobs since 1987. But,
after nearly five years of decline, the City appears to be on the verge of
a broad-based recovery which will lift many sectors of the local economy.
Most of the nascent local recovery can be attributed to the continued
improvement in the U.S. economy, but a great deal of the strength expected
in the City economy will be due to local factors, such as the heavy
concentration of the securities and banking industries in the City. The
current forecast calls for modest employment growth of about 20,000 a year
(0.6 percent) on average through 1998 with some slowing but still positive
growth in employment in 1995-96 as U.S. growth slows (local job gains slow
from 25,000 to around 10,000 per year).

During the most recent economic downturn, the City has faced
recurring extraordinary budget gaps that have been addressed by
undertaking one-time, one-shot budgetary initiatives to close then
projected budget gaps in order to achieve a balanced budget as required by
the laws of the State of New York (the "State"). For example, in order to
achieve a balanced budget for the 1992 fiscal year, the City increased
taxes and reduced services during the 1991 fiscal year to close a then
projected gap of $3.3 billion in the 1992 fiscal year which resulted from,
among other things, lower than expected tax revenue of approximately $1.4
billion, reduced State aid for the City of approximately $564 million and
greater than projected increases in legally mandated expenditures of
approximately $400 million, including public assistance and Medicare
expenditures. The gap closing measures for fiscal year 1992 included
receipt of $605 million from tax increases, approximately $1.5 billion of
proposed service reductions and proposed productivity savings of $545
million.

Notwithstanding its recurring projected budgets gaps, for fiscal
years 1981 through 1993 the City achieved balanced operating results (the
City's General Fund revenues and transfers reduced by expenditures and
transfers), as reported in accordance with Generally Accepted Accounting
Principles ("GAAP"), and the City's 1994 fiscal year results are projected
to be balanced in accordance with GAAP.

The City's ability to maintain balanced budgets in the future is
subject to numerous contingencies; therefore, even though the City has
managed to close substantial budget gaps in recent years in order to
maintain balanced operating results, there can be no assurance that the
City will continue to maintain a balanced budget as required by State law
without additional tax or other revenue increases or reduction in City
services, which could adversely affect the City's economic base.

Pursuant to the laws of the State, the City prepares an annual
four-year financial plan, which is reviewed and revised on a quarterly
basis and which includes the City's capital, revenue and expense
projections. The City is required to submit its financial plans to review
bodies, including the New York State Financial Control Board ("Control
Board"). If the City were to experience certain adverse financial
circumstances, including the occurrence or the substantial likelihood and
imminence of the occurrence of an annual operating deficit of more than
$100 million or the loss of access to the public credit markets to satisfy
the City's capital and seasonal financing requirements, the Control Board
would be required by State law to exercise powers, among others, of prior
approval of City financial plans, proposed borrowings and certain
contracts.

On November 23, 1993, the City submitted to the Control Board
the Financial Plan for the 1994 through 1997 fiscal years, which is a
modification to a financial plan submitted to the Control Board on
August 30, 1993 and which relates to the City, the Board of Education
("BOE") and the City University of New York ("CUNY"). The 1994-1997
Financial Plan projects revenues and expenditures for the 1994 fiscal year
balanced in accordance with GAAP. The 1994-1997 Financial Plan sets forth
actions to close a previously projected gap of approximately $2.0 billion
in the 1994 fiscal year. The gap-closing actions for the 1994 fiscal year
included agency actions aggregating $666 million, including productivity
savings and savings from restructuring the delivery of City services;
service reductions aggregating $274 million; the sale of delinquent real
property tax receivables for $215 million; discretionary transfers from
the 1993 fiscal year of $110 million; reduced debt service costs
aggregating $187 million, resulting from refinancings and other actions;
$150 million in proposed increased Federal assistance; a continuation of
the personal income tax surcharge, resulting in revenues of $143 million;
$80 million in proposed increased State aid, which is subject to approval
by the Governor; and revenue actions aggregating $173 million.

The Financial Plan also sets forth projections for the 1995
through 1997 fiscal years and outlines a proposed gap-closing program to
close projected budget gaps of $1.7 billion, $2.5 billion and $2.7 billion
for the 1995 through 1997 fiscal years, respectively. City gap-closing
actions total $640 million in the 1995 fiscal year, $814 million in the
1996 fiscal year and $870 million in the 1997 fiscal year. These actions
include increased revenues and reduced expenditures from agency actions
aggregating $165 million, $439 million and $470 million in the 1995
through 1997 fiscal years, respectively, including productivity savings
and savings from restructuring the delivery of City services and service
reductions; possible BOE expenditure reductions aggregating $125 million
in each of the 1995 through 1997 fiscal years; and reduced other than
personal service costs aggregating $50 million in each of the 1995 through
1997 fiscal years.

State actions proposed in the gap-program total $306 million,
$616 million and $766 million in each of the 1995, 1996 and 1997 fiscal
years, respectively. These actions include savings from various proposed
mandate relief measures and the proposed reallocation of State education
aid among various localities totaling $175 million, $325 million and $475
million in each of the 1995, 1996 and 1997 fiscal years, respectively.
These actions also include $131 million in 1995 and $291 million in each
of 1996 and 1997 in anticipated State actions which could include savings
from the proposed State assumption of certain Medicaid costs or various
proposed mandate relief measures.

The Federal actions proposed in the gap-closing program are $100
million and $200 million in increased Federal assistance in fiscal years
1996 and 1997, respectively.

Other Actions proposed in the gap-closing program represent
Federal, State or City actions to be specified in the future.

Various actions proposed in the Financial Plan, including the
proposed continuation of the personal income tax surcharge beyond December
31, 1995 and the proposed increase in State aid, are subject to approval
by the Governor and the State Legislature, and the proposed increase in
Federal aid is subject to approval by Congress and the President. The
State Legislature has in previous legislative sessions failed to approve
proposals for the State assumption of certain Medicaid costs, mandate
relief and reallocation of State education aid, thereby increasing the
uncertainty as to the receipt of the State assistance included in the
Financial Plan. If these actions cannot be implemented, the City will be
required to take other actions to decrease expenditures or increase
revenues to maintain a balanced financial plan. The state Legislature has
approved the continuation of the personal income tax surcharge through
December 31, 1995, and the Governor is expected to approve this
continuation. The Financial Plan has been the subject of extensive public
comment and criticism particularly regarding the sale of delinquent
property tax receivables, the sale of the New York City Off-Track Betting
Corporation ("OTB"), the amount of State and Federal aid included in the
Financial Plan and the inclusion of non-recurring actions.

Notwithstanding the proposed city, federal and state actions in
the gap-closing programs, the City Comptroller has warned in past
published reports that State and local tax increases in an economic
downturn or period of slow economic growth can have adverse effects on the
local economy and can slow down an economic recovery. The City
Comptroller has also previously expressed concerns about the effects on
the City's economy and budgets of rapidly increasing water and sewer
rates, decreasing rental payments in future years from the Port Authority
under leases for LaGuardia and Kennedy airports, the dependence on
increased aid from the State and Federal Governments for gap-closing
programs, the escalation cost of judgements and claims, federal deficit
reduction measures and the increasing percentage of future years' revenues
projected to be consumed by debt service, even after reductions in the
capital program.

Although the City has maintained balanced budgets in each of its
last thirteen fiscal years, and is projected to achieve balanced operating
results for the 1993 fiscal year, there can be no assurance that the gap-
closing actions proposed in the Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future
years without additional State aid, revenue increases or expenditure
reductions. Additional tax increases and reductions in essential City
services could adversely affect the City's economic base.

In November 1993, Rudolph W. Giuliani was elected mayor of the
City, replacing the previous administration on January 1, 1994. Mayor
Giuliani's Modification No. 94-2 to the Financial Plan for the City and
Covered Organizations for fiscal years 1994-1998 (the "Modification"),
issued February 10, 1994, reports that for 1995 fiscal year, the budget
gap is estimated at $2.26 billion, or nearly a 12 percent shortfall of
existing tax revenues over baseline expenditures. Absent gap closing
initiatives, the Modification reports that the projected budget gap will
grow to nearly $3.4 billion by 1998 fiscal year. According to the
Modification, the 1995 fiscal year budget gap is the largest that the City
has faced since 1981, when the City converted to GAAP. The Modification
attributes the projected budget gaps to the lingering national recession,
to a sharp growth in expenditures during the boom years of the 1980s and
the failure of the City to reduce the City's municipal workforce. The
Modification reports that at the same time that City employment has
declined as a percentage of U.S. employment, local government employment
in the City, which exceeds the state government employment of the five
largest states, is on the verge of an historic high. According to the
Modification, at the end of December 1993, the City's full-time municipal
workforce stood at more than 362,000 employees, and absent reductions,
will reach an all-time high at the end of fiscal year 1994.

The Modification states that in order to strengthen the City's
long-term fiscal position the City's gap closing initiatives must be
accomplished without resorting to one-shot gap-closing measures, such as
tax increases; instead, it must balance its budgets by reducing City
spending, reducing the size of the City's municipal workforce and reducing
certain City taxes to encourage economic growth. Under the Modification,
fiscal year 1995 spending declines by $516 million over the current fiscal
year, the lowest projected spending rate since 1975. The Modification
plans to reduce the City's municipal workforce by 15,000 positions, as
compared to the current actual headcount, by the end of fiscal year 1995.
The workforce reduction will be achieved through an aggressive severance
package, and, if necessary, layoffs. It is anticipated that these
workforce reduction initiatives will save $117 million, $144 million, $311
million, $415 million and $539 million in fiscal years 1994 through 1998,
respectively, after taking into account an estimated $200 million in costs
related to instituting the proposed severance programs which are
anticipated to be financed with surplus Municipal Assistance Corporation
funds (see below for a discussion of the Municipal Assistance
Corporation). The Modification also contemplates the loss of $35 million,
$186 million, $534 million and $783 million in tax revenues in 1995
through 1998, respectively, as a result of the reduction in certain City
taxes, such as the reduction of the hotel tax from 6 percent to 5 percent,
commercial rent tax reductions and the elimination of the 12.5 percent
personal income tax surcharge.

The 1994-97 Financial Plan is based on numerous assumptions,
including the recovery of the City's and the region's economy early in the
calendar year 1993 and the concomitant receipt of economically sensitive
tax revenues in the amounts projected. The 1994-97 Financial Plan is
subject to various other uncertainties and contingencies relating to,
among other factors, the extent, if any, to which wage increases for City
employees exceed the annual increases assumed for the 1994 through 1997
fiscal years; continuation of the 9% interest earnings assumptions for
pension fund assets affecting the City's required pension fund
contributions; the willingness and ability of the State to provide the aid
contemplated by the Financial Plan and to take various other actions to
assist the City, including the proposed State takeover of certain Medicaid
costs and State mandate relief, the ability of the New York City Health
and Hospitals Corporation ("HHC"), BOE and other agencies to maintain
budget balance; the willingness of the Federal government to provide
Federal aid; approval of the proposed continuation of the personal income
tax surcharge and the State budgets; adoption of the City's budgets by the
City Council; the ability of the City to implement contemplated
productivity and service and personnel reduction programs and the success
with which the City controls expenditures; additional expenditures that
may be incurred due to the requirements of certain legislation requiring
minimum levels of funding for education; the City's ability to market its
securities successfully in the public credit markets; the level of funding
required to comply with the Americans with Disabilities Act of 1990; and
additional expenditures that may be incurred as a result of deterioration
in the condition of the City's infrastructure. Certain of these
assumptions have been questioned by the City Comptroller and other public
officials.

Estimates of the City's revenues and expenditures are based on
numerous assumptions and subject to various uncertainties. If expected
Federal or State aid is not forthcoming, if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive
taxes or necessitate increased expenditures for public assistance, if the
City should negotiate wage increases for its employees greater than the
amounts provided for in the City's Financial Plan or if other
uncertainties materialize that reduce expected revenues or increase
projected expenditures, then, to avoid operating deficits, the City may be
required to implement additional actions, including increases in taxes and
reductions in essential City services. The City might also seek
additional assistance from the State.

The City depends on the State for State aid both to enable the
City to balance its budget and to meet its cash requirements. For its
1993 fiscal year, the State, before taking any remedial action, reported a
potential budget deficit of $4.8 billion (before providing for repayment
of the deficit notes as described below). If the State experiences
revenue shortfalls or spending increases beyond its projections during its
1993 fiscal year or subsequent years, such developments could result in
reductions in projected State aid to the City. In addition, there can be
no assurance that State budgets in future fiscal years will be adopted by
the April 1 statutory deadline and that there will not be adverse effects
on the City's cash flow and additional City expenditures as a result of
such delays.

Implementation of the Financial Plan is also dependent upon the
City's ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1994-1997
contemplates issuance of $11.7 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make capital investments. A significant portion of
such bond financing is used to reimburse the City's general fund for
capital expenditures already incurred. In addition, the City issues
revenue and tax anticipation notes to finance its seasonal working capital
requirements. The success of projected public sales of City bonds and
notes will be subject to prevailing market conditions at the time of the
sale, and no assurance can be given that such sales will be completed. If
the City were unable to sell its general obligation bonds and notes, it
would be prevented from meeting its planned operating and capital
expenditures.

Substantially all of the City's full-time employees are members
of labor unions. The Financial Emergency Act requires that all collective
bargaining agreements entered into by the City and the Covered
Organizations be consistent with the City's current financial plan, except
under certain circumstances, such as awards arrived at through impasse
procedures.

On January 11, 1993, the City announced a settlement with a
coalition of municipal unions, including Local 237 of the International
Brotherhood of Teamsters ("Local 237"), District Council 37 of the
American Federation of State, County and Municipal Employees ("District
Council 37") and other unions covering approximately 44% of the City's
work force. The settlement, which has been ratified by the unions,
includes a total net expenditure increase of 8.25% over a 39-month period,
ending March 31, 1995 for most of these employees. On April 9, 1993 the
City announced an agreement with the Uniformed Fire Officers Association
(the "UFOA") which is consistent with the coalition agreement. The
agreement has been ratified. The Financial Plan reflects the costs
associated with these settlements and provides for similar increases for
all other City-funded employees.

The Financial Plan provides no additional wage increases for
City employees after their contracts expire in the 1995 fiscal year. Each
1% wage increase for all employees commencing in the 1995 fiscal year
would cost the City an additional $30 million for the 1995 fiscal year and
$135 million for the 1996 fiscal year and $150 million for each year
thereafter above the amounts provided for in the Financial Plan.

A substantial portion of the capital improvements in the City
are financed by indebtedness issued by the Municipal Assistance
Corporation for the City of New York ("MAC"). MAC was organized in 1975
to provide financing assistance for the City and also to exercise certain
review functions with respect to the City's finances. MAC bonds are
payable out of certain State sales and compensating use taxes imposed
within the City, State stock transfer taxes and per capita State aid to
the City. Any balance from these sources after meeting MAC debt service
and reserve fund requirements and paying MAC's operating expenses is
remitted to the City or, in the case of the stock transfer taxes, rebated
to the taxpayers. The State is not, however, obligated to continue the
imposition of such taxes or to continue appropriation of the revenues
therefrom to MAC, nor is the State obligated to continue to appropriate
the State per capita aid to the City which would be required to pay the
debt service on certain MAC obligations. MAC has no taxing power and MAC
bonds do not create an enforceable obligation of either the State or the
City. As of September 30, 1993, MAC had outstanding an aggregate of
approximately $5.304 billion of its bonds.

Standard & Poor's has rated City Bonds A-. Moody's Investors
Service, Inc. ("Moody's") has rated City Bonds Baal. Such ratings reflect
only the views of Standard & Poor's and Moody's from which an explanation
of the significance of such ratings may be obtained. There is no
assurance that either or both of such ratings will continue for any given
period of time or that either or both will not be revised downward or
withdrawn entirely. Any such downward revision or withdrawal could have
an adverse effect on the market prices of the Bonds.

In 1975, Standard & Poor's suspended its A rating of City Bonds.
This suspension remained in effect until March 1981, at which time the
City received an investment grade rating of BBB from Standard & Poor's.
On July 2, 1985, Standard & Poor's revised its rating of City Bonds upward
to BBB+ and on November 19, 1987, to A-. On July 2, 1993, Standard &
Poor's reconfirmed its A- rating of City Bonds, continued its negative
rating outlook assessment and stated that maintenance of such ratings
depended upon the City's making further progress towards reducing budget
gaps in the outlying years. Moody's ratings of City bonds were revised in
November 1981 from B (in effect since 1977) to Ba1, in November 1983 to
Baa, in December 1985 to Baal, in May 1988 to A and again in February 1991
to Baal.

New York State and Its Authorities. The national recession
which commenced in mid-1990 has had a more adverse impact on the State's
economy than on other parts of the nation, owing to a significant
retrenchment in the financial services industry, cutbacks in defense
spending, and an overbuilt real estate market in the State and City. As a
result of the national and regional economic recession, the State's tax
revenues for its 1991 and 1992 fiscal years were substantially lower than
projected. Consequently, the State took various actions for its 1992
fiscal year, which included increases in certain State taxes and fees,
substantial decreases in certain expenditures from previously projected
levels, including cuts in State operations and reductions in State aid to
localities, and the sale of $531 million of short-term deficit notes prior
to the end of the State's 1992 fiscal year. The State's 1992-93 budget
was passed on time, closing an estimated $4.8 billion imbalance resulting
primarily from the national and regional economic recession. Major
budgetary actions included a freeze in the scheduled reduction in the
personal income tax and business tax surcharge, adoption of significant
Medicaid cost containment or revenue initiatives, and reductions in both
agency operations and grants to local governments from previously
anticipated levels. The State completed its 1993 fiscal year with a
positive margin of $671 million in the General Fund which was deposited
into a tax refund reserve account.

The Governor released the recommended Governor's Executive
Budget for the 1993-1994 fiscal year on January 19, 1993. The recommended
1993-1994 State Financial Plan projected a balanced General Fund. General
Fund receipts and transfers from other funds were projected at $31.6
billion, including $184 million carried over from the State's 1993 fiscal
year. Disbursements and transfers from other funds were projected at
$31.5 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund. To achieve General Fund budgetary balance in
the 1994 State fiscal year, the Governor recommended various actions.These
included proposed spending reductions and other actions that would reduce
General Fund spending ($1.6 billion); continuing the freeze on personal
income and corporate tax reductions and on hospital assessments ($1.3
billion); retaining moneys in the General Fund that would otherwise have
been deposited in dedicated highway and transportation funds ($516
million); a 21-cent increase in the cigarette tax ($180 million); and new
revenues from miscellaneous sources ($91 million). The recommended
Governor's 1993-94 Executive Budget included reductions in anticipated aid
to all levels of local government.

In comparison to the recommended 1993-94 Executive Budget, the
1993-94 State budget, as enacted, reflects increases in both receipts and
disbursements in the general Fund of $811 million.

The $811 million increase in projected receipts reflects (i) an
increase of $487 million, from $184 million to $671 million, in the
positive year-end margin at March 31, 1993, which resulted primarily from
improving economic conditions and higher-than-expected tax collections,
(ii) an increase of $269 million in projected receipts, $211 million
resulting from the improved 1992-93 results and the expectation of an
improving economy and the balance from improved auditing and enforcement
measures and other miscellaneous items, (iii) additional payments of $200
million from the Federal government to reimburse the State for the cost of
providing indigent medical care, and (iv) the payment of an additional $50
million of personal income tax refunds in the 1992-93 fiscal year which
would otherwise have been paid in fiscal year 1993-94; offset by (v) $195
million of revenue raising recommendations in the Executive Budget that
were not enacted in the budget and thus are not included in the 1993-94
State Financial Plan.

The $811 million increase in projected disbursements reflects
(i) an increase of $252 million in projected school-aid payments, after
applying estimated receipts from the State Lottery allocated to school
aid, (ii) a increase of $194 million in projected payments for Medicaid
assistance and other social service programs, (iii) additional spending on
the judiciary ($56 million) and criminal justice ($48 million), (iv) a net
capital projects, of $162 million, after reflecting certain re-estimates
in spending, and (v) the transfer of $100 million to a newly-established
contingency reserve.

The 1993-94 State budget, as enacted, included $400 million less
in State actions that the City had anticipated. Reform of education aid
formulas was achieved which brought an additional $145 million education
dollars to New York City. However, the State Legislature failed to enact
a takeover of local Medicaid costs, other significant mandate relief items
and certain Medicaid cost containment items proposed by the Governor,
which would have provided the City with savings. The adopted State budget
cut aid for probation services, increased sanctions on social service
programs, eliminated the pass-through of a State surcharge on parking
tickets, cut reimbursement for CHIPS transportation operating dollars, and
required a large contribution in City funds to hold the MTA fare at the
current level. In the event of any significant reduction in projected
State revenues or increases in projected State expenditures from the
amounts currently projected by the State, there could be an adverse impact
on the timing and amounts of State aid payments to the City in the future.

On October 29, 1993, the State released a revised financial plan
for the State's 1993-94 fiscal year (the "Revised State Financial Plan")
which includes increased taxes and other revenues, deferral of scheduled
personal income and corporation tax reductions, reductions from previously
projected levels in aid to localities and State operations and other
budgetary actions that further limit the growth of General Fund
disbursements as compared to the initial financial plan for the State's
1993-94 fiscal year. The Revised State Financial Plan is based on
economic projections that the State will perform more poorly than the
nation as a whole. The State's economy, as measured by employment, was
expected to commence growth late in the 1993 calendar year. Many
uncertainties exist in forecasts of both the national and State economies,
including consumer attitudes toward spending. There can be no assurance
that the State economy will not experience worse-than-predicted results in
the 1993-94 fiscal year, with corresponding material and adverse effects
on the State's projections of receipts and disbursements.

In certain prior fiscal years, the State has failed to enact a
budget prior to the beginning of the State's fiscal year. A delay in the
adoption of the State's budget beyond the statutory April 1 deadline and
the resultant delay in the State's Spring borrowing has in certain prior
years delayed the projected receipt by the City of State aid, and there
can be no assurance that State budgets in future fiscal years will be
adopted by the April 1 statutory deadline.

The State has noted that its forecasts of tax receipts have been
subject to variance in recent fiscal years. As a result of these
uncertainties and other factors, actual results could differ materially
and adversely from the State's current projections and the State's
projections could be materially and adversely changed from time to time.

On January 14, 1992, Standard & Poor's downgraded the State's
general obligation bonds from A to A-. Also downgraded was certain of the
State's variously rated moral obligation, lease purchase, guaranteed and
contractual obligation debt, including debt issued by certain State
agencies. On June 6, 1990, Moody's changed its rating of the State's
outstanding general obligation bonds from AA- to A. The State's tax and
revenue anticipation notes issued in February 1991 were rated MIG-2 by
Moody's and SP-1 by Standard & Poor's. On January 6, 1992, Moody's
changed its rating of certain appropriations-backed debt of the State from
A to Baal. Moody's also placed the State's general obligation, State
guaranteed and New York State Local Government Assistance Corporation
bonds under review for possible downgrading in coming months. Any action
taken by Standard & Poor's or Moody's to lower the credit rating on
outstanding indebtedness and obligations of the State may have an adverse
impact on the marketability of the State's notes and bonds.

As of March 31, 1993, the State had approximately $5.132 billion
in general obligation bonds excluding refunding bonds and $293 million in
bond anticipation notes outstanding. On May 24, 1993 the State issued
$850 million in tax and revenue anticipation notes all of which will
mature on December 31, 1993. Principal and interest due on general
obligation bonds and interest due on bond anticipation notes and on tax
and revenue anticipation notes were $890 million and $818.8 million for
the 1991-92 and 1992-93 fiscal years, respectively, and are estimated to
be $789 million for the State's 1993-94 fiscal year, not including
interest on refunding bonds, issued in July 1992, to the extent that such
interest is to be paid from escrowed funds.

The fiscal stability of the State is related to the fiscal
stability of its authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. The authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself and
may issue bonds and notes within the amounts of, and as otherwise
restricted by, their legislative authorization. As of September 30, 1992
there were 18 authorities that had outstanding debt of $100 million or
more. The aggregate outstanding debt, including refunding bonds, of these
18 authorities was $62.2 billion as of September 30, 1992, of which
approximately $8.2 billion was moral obligation debt and approximately
$17.1 billion was financed under lease-purchase or contractual-obligation
financing arrangements.

The authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent
years, however, the State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the 18
authorities for operating and other expenses and, in fulfillment of its
commitments on moral obligation indebtedness or otherwise for debt
service. This assistance is expected to continue to be required in future
years.

The Metropolitan Transit Authority ("MTA"), a State agency,
oversees the operation of the City's subway and bus system (the "Transit
Authority" or "TA") and commuter rail lines serving the New York
metropolitan area. Fare revenues from such operations have been
insufficient to meet expenditures, and the MTA depends heavily upon a
system of State, local, Triborough Bridge and Tunnel Authority ("TBTA")
and, to the extent available, Federal support. Over the past several
years, the State has enacted several taxes, including a surcharge on the
profits of banks, insurance corporations and general business corporations
doing business in the 12-county region served by the MTA (the
"Metropolitan Transportation Region") and a special one-quarter of 1%
regional sales and use tax, that provide additional revenues for mass
transit purposes including assistance to the MTA. The surcharge, which
expires in November 1995, yielded $507 million in calendar year 1992, of
which the MTA was entitled to receive approximately 90 percent, or
approximately $456 million.

For 1993, TA has projected a budget gap of about $266 million.
The MTA Board approved an increase in TBTA tools which took effect January
31, 1993. Since the TBTA operating surplus helps subsidize TA operations,
the January toll increase on TBTA facilities, and other developments,
reduced the projected gap to approximately $241 million. Legislation
passed in April 1993 relating to the MTA's 1992-1996 Capital Program
reflected a plan for closing this gap without raising fares. A major
element of the plan provides that the TA receive a significant share of
the petroleum business tax which will be paid directly to MTA for its
agencies. The plan also relies on certain City actions that have not yet
been taken. The plan also relies on MTA and TA resources projected to be
available to help close the gap. If any of the assumptions used in making
these projections prove incorrect, the TA's gap could grow, and the TA
would be required to seek additional State assistance, raise fares or take
other actions.

Two serious accidents in December 1990 and August 1992, which
caused fatalities and many injuries, have given rise to substantial claims
for damages against both the TA and the City.

The State's experience has been that if an Authority suffers
serious financial difficulties, both the ability of the State and the
Authorities to obtain financing in the public credit markets and the
market price of the State's outstanding bonds and notes may be adversely
affected. The Housing Finance Agency ("HFA") and the Urban Development
Corporation ("UDC") have in the past required substantial amounts of
assistance from the State to meet debt service costs or to pay operating
expenses. Further assistance, possibly in increasing amounts, may be
required for these, or other, Authorities in the future. In addition,
certain statutory arrangements provide for State local assistance payments
otherwise payable to localities to be made under certain circumstances to
certain Authorities. The State has no obligation to provide additional
assistance to localities whose local assistance payments have been paid to
Authorities under these arrangements. However, in the event that such
local assistance payments are so diverted, the affected localities could
seek additional State funds.

Litigation. A number of court actions have been brought
involving State finances. The court actions in which the State is a
defendant generally involve state programs and miscellaneous tort, real
property, employment discrimination and contract claims and the monetary
damages sought are substantial. The outcome of these proceedings could
affect the ability of the State to maintain a balanced State Financial
Plan in the 1994-97 fiscal year or thereafter.

In particular, for the State's 1993-1994 fiscal year, the State
may be required to make payments as a result of the United States Supreme
Court decision in the case of State of Delaware v. State of New York,
which involved a challenge to the State's possession of certain funds
taken pursuant to the State's Abandoned Property Law. Although it is not
possible to predict the amounts of the payments that may be required to be
made in the State's 1993-94 fiscal year, the amount may be significant.
The Division of the Budget expects, however, that the State will have the
resources to meet reasonably anticipated payment requirements for the
1993-94 fiscal year resulting from the litigation.

In addition, on November 23, 1993, the New York Court of
Appeals, the State's highest court, affirmed the decisions of the State's
Supreme Court in several actions challenging the constitutionality of
legislation enacted in 1990 which changed the actuarial funding methods
for determining contributions by the State and local governments to the
State and local retirement systems. As a result of this decision, the
State Comptroller has developed a plan to return to the previous actuarial
funding method and to restore previous funding levels of the retirement
system. The Comptroller expects to achieve this objective in a manner
that, consistent with its fiduciary duties, will neither require the State
to make additional contributions in its 1993-1994 fiscal year nor
materially and adversely affect the financial condition of the State
thereafter.

Among the more significant of these claims still pending against
the State at various procedural stages, are those that challenge: (1) the
validity of agreements and treaties by which various Indian tribes
transferred title to the State of certain land in central New York; (2)
certain aspects of the State's Medicaid rates and regulations, including
reimbursements to providers of mandatory and optional Medicaid services;
(3) contamination in the Love Canal area of Niagara Falls; (4) an action
against State and New York City officials alleging that the present level
of shelter allowance for public assistance recipients is inadequate under
statutory standards to maintain proper housing; (5) challenges to the
practice of reimbursing certain Office of Mental Health patient care
expenses from the client's Social Security benefits; (6) a challenge to
the methods by which the State reimburses localities for the
administrative costs of food stamp programs; (7) alleged responsibility of
State officials to assist in remedying racial segregation in the City of
Yonkers; (8) an action in which the State is a third party defendant, for
injunctive or other appropriate relief, concerning liability for the
maintenance of stone groins constructed along certain areas of Long
Island's shoreline; (9) an action challenging legislation enacted in 1990
which had the effect of deferring certain employer contributions to the
State Teachers' Retirement System and reducing State aid to school
districts by a like amount; (10) a challenge to the constitutionality of
financing programs of the Thruway Authority authorized by Chapters 166 and
410 of the Laws of 19; (11) a challenge to the constitutionality of
financing programs of the Metropolitan Transportation Authority and the
Thruway Authority authorized by Chapter 56 of the Law of 1993; (12)
challenges to the delay by the State Department of Social Services in
making two one-week Medicaid payments to the service providers; (13)
challenges to provisions of Section 2807-C of the Public Health Law, which
impose a 13% surcharge on impatient hospital bills paid by commercial
insurers and employee welfare benefit plans and portions of Chapter 55 of
The Laws of 1992 which require hospitals to impose and remit to the state
an 11% surcharge on hospital bills paid by commercial insurers; (14)
challenges to the promulgation of the State's proposed procedure to
determine the eligibility for and nature of home care services for
Medicaid recipients; (15) a challenge to State implementation of a program
which reduces Medicaid benefits to certain home-relief recipients; and
(16) challenges to the rationality and retroactive application of State
regulations recalibrating nursing home Medicaid rates.

State Economic Trends. Over the long term, the State and the
City also face serious potential economic problems. The City accounts for
approximately 41% of the State's population and personal income, and the
City's financial health affects the State in numerous ways. The State
historically has been one of the wealthiest states in the nation. For
decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic affluence. Statewide,
urban centers have experienced significant changes involving migration of
the more affluent to the suburbs and an influx of generally less affluent
residents. Regionally, the older Northeast cities have suffered because
of the relative success that the South and the West have had in attracting
people and business. The City has also had to face greater competition as
other major cities have developed financial and business capabilities
which make them less dependent on the specialized services traditionally
available almost exclusively in the City. In recent years the State's
economic position has improved in a manner consistent with that for the
Northeast as a whole.

The State has for many years had a very high State and local tax
burden relative to other states. The State and its localities have used
these taxes to develop and maintain their transportation networks, public
schools and colleges, public health systems, other social services and
recreational facilities. Despite these benefits, the burden of State and
local taxation, in combination with the many other causes of regional
economic dislocation, has contributed to the decisions of some businesses
and individuals to relocate outside, or not locate within, the State.

Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced
budgets, reductions in Federal spending could materially and adversely
affect the financial condition and budget projections of the State and its
localities.

Pennsylvania Trust

The following information constitutes only a brief summary of a
number of the complex factors which may impact issuers of Pennsylvania
municipal securities and does not purport to be a complete or exhaustive
description of all conditions to which issuers of Pennsylvania municipal
securities may be subject. Such information is derived from official
statements utilized in connection with the issuance of Pennsylvania
municipal securities, as well as from other publicly available documents.
Such information has not been independently verified by the Trust and the
Trust assumes no responsibility for the completeness or accuracy of such
information. Additionally, many factors, including national, economic,
social and environmental policies and conditions, which are not within the
control of such issuers, could have an adverse impact on the financial
condition of such issuers. The Trust cannot predict whether or to what
extent such factors or other factors may affect the issuers of
Pennsylvania municipal securities, the market value or marketability of
such securities or the ability of the respective issuers of such
securities held by the Trust to pay interest on or principal of such
securities. The creditworthiness of obligations issued by local
Pennsylvania issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth of Pennsylvania, and there is no
obligation on the part of the Commonwealth of Pennsylvania to make
payments on such local obligations. There may be specific factors that
are applicable in connection with investment in the obligations of
particular issuers located within Pennsylvania, and it is possible the
Trust has invested in obligations of particular issuers as to which such
specific factors are applicable. However, the information set forth below
is intended only as a general summary and not as a discussion of any
specific factors that may affect any particular issuer of Pennsylvania
municipal securities.

State Economy. The Commonwealth of Pennsylvania is one of the
most populous states, ranking fifth behind California, New York, Texas and
Florida. Pennsylvania is an established yet growing state with a
diversified economy. It is the headquarters for 64 major corporations and
the home for more than 268,600 businesses. Pennsylvania historically has
been identified as a heavy industry state although that reputation has
changed recently as the industrial composition of the Commonwealth
diversified when the coal, steel and railroad industries began to decline.
The major new sources of growth in Pennsylvania are in the service sector,
including trade, medical and the health services, education and financial
institutions. Pennsylvania's agricultural industries are also an
important component of the Commonwealth's economic structure, accounting
for more than $3.5 billion in crop and livestock products annually, while
agribusiness and food related industries support $38 billion in economic
activity annually.

Non-agricultural employment in the Commonwealth declined by 5.1
percent during the recessionary period from 1980 to 1983. In 1984, the
declining trend was reversed as employment grew by 2.9 percent over 1983
levels. From 1984 to 1990, non-agricultural employment continued to grow
each year, increasing an additional 14.3 percent during such period. For
the last two years, employment in the Commonwealth has declined 1.9
percent. The growth in employment experienced in Pennsylvania is
comparable to the growth in employment in the Middle Atlantic region which
has occurred during this period. As a percentage of total non--
agricultural employment within the Commonwealth, non-manufacturing
employment has increased steadily since 1980 to its 1992 level of 81.3
percent of total employment. Consequently, manufacturing employment
constitutes a diminished share of total employment within the
Commonwealth. Manufacturing, contributing 18.7 percent of 1992
non-agricultural employment, has fallen behind both the services sector
and the trade sector as the largest single source of employment within the
Commonwealth. In 1992, the services sector accounted for 29.3 percent of
all non-agricultural employment while the trade sector accounted for 22.7
percent.

From 1983 to 1989, Pennsylvania's annual average unemployment
rate dropped from 11.8 percent to 4.5 percent, falling below the national
rate in 1986 for the first time in over a decade. Slower economic growth
caused the unemployment rate in the Commonwealth to rise to 6.9 percent in
1991 and 7.5 percent in 1992. As of February 1994, the seasonally
adjusted unemployment rate for the Commonwealth was 5.1 percent compared
to 6.5 percent for the United States as a whole.

The Commonwealth operates under an annual budget which is
formulated and submitted for legislative approval by the Governor each
February. The Pennsylvania Constitution requires that the Governor's
budget proposal consist of three parts: (i) a balanced operating budget
setting forth proposed expenditures and estimated revenues from all
sources and, if estimated revenues and available surplus are less than
proposed expenditures, recommending specific additional sources of revenue
sufficient to pay the deficiency; (ii) a capital budget setting forth
proposed expenditures to be financed from the proceeds of obligations of
the Commonwealth or its agencies or from operating funds; and (iii) a
financial plan for not less than the succeeding five fiscal years, which
includes for each year projected operating expenditures and estimated
revenues and projected expenditures for capital projects. The General
Assembly may add, change or delete any items in the budget prepared by the
Governor, but the Governor retains veto power over the individual
appropriations passed by the legislature. The Commonwealth's fiscal year
begins on July 1 and ends on June 30.

The Constitution and the laws of the Commonwealth require all
payments from the treasury, with the exception of refunds of taxes,
licenses, fees and other charges, to be made only by duly enacted
appropriations. Amounts appropriated from a fund may not exceed its
actual and estimated revenues for the fiscal year plus any surplus
available. Appropriations from the principal operating funds of the
Commonwealth (the General Fund, the Motor License Fund and the State
Lottery Fund) are generally made for one fiscal year and are returned to
the unappropriated surplus of the fund (a lapse) if not spent or
encumbered by the end of the fiscal year.

Pennsylvania uses the "fund" method of accounting for receipts
and disbursements. For purposes of government accounting, a "fund" is an
independent fiscal and accounting entity with a self-balancing set of
accounts, recording cash and/or other resources together with all related
liabilities and equities which are segregated for the purpose of carrying
on specific activities or attaining certain objectives in accordance with
the fund's special regulations, restrictions or limitations. In the
Commonwealth, funds are established by legislative enactment or in certain
cases by administrative action. Over 140 funds have been established for
the purpose of recording the receipts and disbursements of monies received
by the Commonwealth. Annual budgets are adopted each fiscal year for the
principal operating funds of the Commonwealth and several other special
revenue funds. Expenditures and encumbrances against these funds may only
be made pursuant to appropriation measures enacted by the General Assembly
and approved by the Governor. The General Fund, the Commonwealth's
largest fund, receives all tax revenues, non-tax revenues and federal
grants and entitlements that are not specified by law to be deposited
elsewhere. The majority of the Commonwealth's operating and
administrative expenses are payable from the General Fund. Debt service
on all bond indebtedness of the Commonwealth, except that issued for
highway purposes or for the benefit of other special revenue funds, is
payable from the General Fund.

Financial information for the principal operating funds of the
Commonwealth is maintained on a budgetary basis of accounting. Since
1984, the Commonwealth has also prepared annual financial statements in
accordance with generally accepted accounting principles ("GAAP").
Financial statements prepared in accordance with GAAP have been audited
jointly by the Auditor General of the Commonwealth and an independent
public accounting firm each year since 1984. Budgetary basis financial
reports are based on a modified cash basis of accounting as opposed to a
modified accrual basis of accounting prescribed by GAAP. The budgetary
basis financial information maintained by the Commonwealth to monitor and
enforce budgetary control is adjusted at fiscal year-end to reflect
appropriate accruals for financial reporting in conformity with GAAP.

Financial Results for Recent Fiscal Years (GAAP Basis). The
five year period from fiscal 1989 through fiscal 1993 was marked by public
health and welfare costs growing at a rate double the growth for all the
state expenditures. Rising caseloads, increased utilization of services
and rising prices joined to produce the rapid rise of public health and
welfare costs at a time when a national recession caused tax revenues to
stagnate and even decline. During the period from fiscal 1989 through
fiscal 1993, public health and welfare costs rose by an average annual
rate of 10.9 percent while tax revenues were growing at an average annual
rate of 5.5 percent. Consequently, spending on other budget programs was
restrained to a growth rate below 5.0 percent and sources of revenues
other than taxes became larger components of fund revenues. Among those
sources are transfers from other funds and hospital and nursing home
pooling of contributions to use as federal matching funds.

Tax revenues declined in fiscal 1991 as a result of the
recession in the economy. A $2.7 billion tax increase enacted for fiscal
1992 brought financial stability to the General Fund. That tax increase
included several taxes with retroactive effective dates which generated
some one-time revenues during fiscal 1992. The absence of those revenues
in fiscal 1993 contributed to the decline in tax revenues shown for fiscal
1993.

During fiscal 1992 enactment of over $2.7 billion in General
Fund tax increases and implementation of expenditure control initiatives
have helped the General Fund balance return to a surplus at June 30, 1992
of $87.5 million. The actions taken to increase revenues and restrain
expenditure growth were necessary to offset the effects on General Fund
finances of period of slow economic growth including a national economic
recession. The recession caused tax revenues during fiscal 1991 to be
below the amount received during fiscal 1990 while spending, particularly
for public health and welfare programs to support needy individuals,
increased by over 21 percent. Public health and welfare expenditures
continued their rapid increase with a 23.9 percent increase during fiscal
1992 as caseloads and costs continued upward. Some of these increased
costs were met through the use of pooled financing techniques that use
private contributions and intergovernmental transfers to substitute for
state funds matched for federal governmental grants-in-aid. The higher
level of intergovernmental and other revenue for fiscal 1991 and 1992
reflect the use of these techniques. Debt service expenditures have
escalated as the amount of tax anticipation note borrowing increased in
response to the fiscal pressures brought about by slow economic growth and
the recession.

Fiscal 1991 Financial Results -- GAAP Basis. The General Fund
experienced an $861.2 million operating deficit resulting in a fund
balance deficit of $980.9 million at June 30, 1991. The operating deficit
was a consequence of the effect of a national recession that restrained
budget revenues and pushed expenditures above budgeted levels. At
June 30, 1991, a negative unreserved-undesignated balance of $1,146.2
million was reported. During fiscal 1991, the balance in the Tax
Stabilization Reserve Fund was used to maintain vital state spending.

Budgetary Basis. A deficit of $453.6 million was recorded by
the General Fund at June 30, 1991. The deficit was a consequence of
higher than budgeted expenditures and lower than estimated revenues during
the fiscal year brought about by the national economic recession that
began during the fiscal year. The budgetary basis deficit at June 30,
1991 was carried into the 1992 fiscal year and funded in the fiscal 1992
budget.

A number of actions were taken throughout the fiscal year by the
Commonwealth to mitigate the effects of the recession on budget revenues
and expenditures. Actions taken, together with normal appropriation
lapses, produced $871 million in expenditure reductions and revenue
increases for the fiscal year. The most significant of these actions were
a $214 million transfer from the Pennsylvania Industrial Development
Authority ("PIDA"), a $134 million transfer from the Tax Stabilization
Reserve Fund, and a pooled financing program to match federal Medicaid
funds replacing $145 million of state funds.

Restrained by the recession, economic activity within the state
declined and caused corporation tax receipts and sales and use tax
receipts to be below year-earlier receipts. Sales and use tax collections
for the fiscal year totaled $4,200.3 million, a 0.9 percent decrease from
fiscal 1990 collections and $276.4 million below the budget estimate.
Corporation, public utility, financial and insurance taxes in aggregate
totaled $2,648.0 million, 7.3 percent below fiscal 1990 collections and
$199.0 million below the budget estimate. Personal income tax receipts
totaled $3,375.5 million, an increase of 2.0 percent over fiscal 1990
collections, but $136.6 million below the budget estimate.

Non-tax revenues were above the budget estimate largely as a
result of the $214 million transfer of funds from the PIDA
recapitalization. In addition to the transfer from PIDA, $230.1 million
of other non-recurring revenues were received during the fiscal year to
help reduce the budget deficit.

Rising program demands caused by the economic recession,
particularly for the medical assistance and cash assistance programs,
produced rapidly increasing costs during the fiscal year, causing
expenditures to exceed their respective budget estimates. Costs of
special education programs and for corrections facilities and programs
also exceeded their budgeted amounts due to underestimates of their fiscal
year costs. Meeting these higher budget needs required supplemental
appropriation authority of $374 million to be enacted during the fiscal
year.

One consequence of the lower revenues and higher expenditures
than budgeted for fiscal 1991 was the need to delay making certain
disbursements against state appropriations. Throughout the fiscal year
the Commonwealth elected to defer certain disbursements of appropriated
amounts in order to assure that sufficient cash was available to meet the
highest priority payments such as debt service, cash assistance and
payrolls. The deferred payments were accounted for as fiscal 1991
expenditures but were disbursed during fiscal 1992 from current cash flow
or from the proceeds of the fiscal 1992 tax anticipation notes.

Fiscal 1992 Financial Results -- GAAP Basis. During fiscal 1992
the General Fund recorded a $1.1 billion operating surplus. This
operating surplus was achieved through legislated tax rate increases and
tax base broadening measures enacted in August 1991 and by controlling
expenditures through numerous cost reduction measures implemented
throughout the fiscal year. These actions are described more fully below
under the heading "Budgetary Basis". As a result of the fiscal 1992
operating surplus, the fund balance has increased to $87.5 million and the
unreserved/undesignated deficit has dropped to $138.6 million from its
fiscal 1991 level of $1,146.2 million.

Budgetary Basis. Eliminating the budget deficit carried into
fiscal 1992 from fiscal 1991 and providing revenues for fiscal 1992
budgeted expenditures required tax revisions that are estimated to have
increased receipts for the 1992 fiscal year by over $2.7 billion. Total
revenues for the fiscal year were $14,516.8 million, a $2,654.5 million
increase over cash revenues during fiscal 1991. Originally based on
forecasts for an economic recovery, the budget revenue estimates were
revised downward during the fiscal year to reflect continued recessionary
economic activity. Largely due to the tax revisions enacted for the
budget, corporate tax receipts totaled $3,761.2 million, up from $2,656.3
million in fiscal 1991, sales tax receipts increased by $302.0 million to
$4,499.7 million, and personal income tax receipts totaled $4,807.4
million, an increase of $1,443.8 million over receipts in fiscal 1991.

As a result of the lowered revenue estimate during the fiscal
year, increased emphasis was placed on restraining expenditure growth and
reducing expenditure levels. A number of cost reductions were implemented
during the fiscal year that contributed to $296.8 million of appropriation
lapses. These appropriation lapses were responsible for the $8.8 million
surplus at fiscal year-end, after accounting for the required 10 percent
transfer of the surplus to the Tax Stabilization Reserve Fund.

Spending increases in the fiscal 1992 budget were largely
accounted for by increases for education, social services and corrections
programs. Commonwealth funds for the support of public schools were
increased by 9.8 percent to provide a $438.0 million increase to $4.9
billion for fiscal 1992. The fiscal 1992 budget provided additional funds
for basic and special education and included provisions designed to help
restrain the annual increase of special education costs, an area of recent
rapid cost increases. Child welfare appropriations supporting county-
operated child welfare programs were increased $67.0 million, more than
31.5 percent over fiscal 1991. Other social service areas such as medical
and cash assistance also received significant funding increases as costs
have risen quickly as a result of the economic recession and high
inflation rates of medical care costs. The costs of corrections programs,
reflecting the marked increase in prisoner population, increased by 12.0
percent. Economic development efforts, largely funded from bond proceeds
in fiscal 1991, were continued with General Fund appropriations for fiscal
1992.

The budget included the use of several Medicaid pooled financing
transactions. These pooling transactions replaced $135.0 million of
Commonwealth funds, allowing total spending under the budget to increase
by an equal amount.

Fiscal 1993 Financial Results -- GAAP Basis. The fund balance
of the General Fund increased by $611.4 million during the fiscal year,
led by an increase in the unreserved balance of $576.8 million over the
prior fiscal year balance. At June 30, 1993, the fund balance totaled
$698.9 and the unreserved/undesignated balance totaled $64.4 million. A
continuing recovery of the Commonwealth's financial condition from the
effects of the national economic recession of 1990 and 1991 is
demonstrated by this increase in the balance and a return to a positive
unreserved/undesignated balance. The previous positive
unreserved/undesignated balance was recorded in fiscal 1987. For the
second consecutive fiscal year the increase in the unreserved/undesignated
balance exceeded the increase recorded in the budgetary basis
unappropriated surplus during the fiscal year.

Budgetary Basis. The 1993 fiscal year closed with revenues
higher than anticipated and expenditures about as projected, resulting in
an ending unappropriated balance surplus (prior to the ten percent
transfer to the Tax Stabilization Reserve Fund) of $242.3 million,
slightly higher than estimated in May 1993. Cash revenues were $41.5
million above the budget estimate and totaled $14.633 billion representing
less than a one percent increase over revenues for the 1992 fiscal year.
A reduction in the personal income tax rate in July 1992 and revenues from
retroactive corporate tax increases received in fiscal 1992 were
responsible, in part, for the low revenue growth in fiscal 1993.

Appropriations less lapses totaled an estimated $13.870 billion
representing a 1.1 percent increase over those during fiscal 1992. The
low growth in spending is a consequence of a low rate of revenue growth,
significant one-time expenses during fiscal 1992, increased tax refund
reserves to cushion against adverse decisions on pending litigations, and
the receipt of federal funds for expenditures previously paid out of
Commonwealth funds.

By state statute, ten percent of the budgetary basis
unappropriated surplus at the end of a fiscal year is to be transferred to
the Tax Stabilization Reserve Fund. The transfer for the fiscal 1993
balance is $24.2 million. The remaining unappropriated surplus of $218.0
million was carried forward into the 1994 fiscal year.

Fiscal 1994 Budget (Budgetary Basis). The enacted 1994 fiscal
year budget provides for $14.995 billion of appropriations of Commonwealth
funds. The largest increase in appropriations is for the Department of
Public Welfare --$235 million-- to meet the increasing costs of medical
care and rising caseloads. Other large increases are education --$196
million-- including $129 million to increase state educational subsidies
for the most needy school districts and $104 million for correctional
institutions to pay operating costs and lease payments for five new
prisons and to expand the capacity of two existing facilities.

The continuing rise in medical assistance costs cannot be met
from the resources provided by a much slower growing tax revenue base.
Consequently, program and financial changes must be implemented to keep
costs within budget limits. For fiscal 1994, the Commonwealth plans to
save $247 million by receiving federal reimbursement for hospital services
provided to state general assistance recipients. Prior to this time,
those costs were fully paid by the Commonwealth. In addition, the
Commonwealth will continue to use pooled financing for medical assistance
costs using intergovernmental transfers in place of voluntary
contributions as was done in earlier fiscal years. Through the pooled
financing, additional federal reimbursements may be drawn to support the
medical assistance program. The pooled financing is anticipated to
replace $99 million of Commonwealth funds in the 1994 fiscal year budget.

The budget estimates revenue growth of 3.7 percent over fiscal
1993 actual revenues. The revenue estimate is based on an expectation of
continued economic recovery, but at a slow rate. Sales tax receipts are
projected to rise 4.4 percent over 1993 receipts while personal income tax
receipts are projected to increase by 3.3 percent, a rate that is low
because of the tax rate reduction in July 1992.

In February 1994, the Governor recommended $46.4 million of
additional appropriations be enacted for fiscal 1994, raising total
appropriations to $15,041.7 million. The largest increase in additional
appropriations is $27.3 million to make audit payments to the federal
Department of Health and Human Services. No change to the aggregate
commonwealth revenue estimate was made although individual tax estimates
have been revised to reflect actual receipts to date and the tax refund
estimate was reduced to reflect a favorable ruling in Philadelphia
Suburban Corp. vs. Commonwealth. Through February 1994, revenues are
slightly ($1.1 million or 0.01 percent) above estimate as below estimate
corporate tax receipts are being offset by above estimate sales tax,
personal income tax and non-tax revenue receipts.

Upon completion of a review of actual expenditures and revised
estimates for the remainder of fiscal 1994, lapses of current and prior
years' appropriations are projected to be $163.0 million. The projected
lapses and the beginning unappropriated surplus contribute to a projected
ending unappropriated surplus of $296.8 million before the required ten
percent transfer to the Tax Stabilization Reserve Fund.

Proposed Fiscal 1995 Budget. For the fiscal year beginning July
1, 1994, the Governor has proposed a budget containing a 4.1 percent
increase in appropriations over the actual and proposed supplemental
appropriations for fiscal 1994. Total appropriations recommended amount
to $15,665 million. The budget is balanced by drawing down of a projected
$267 million unappropriated surplus for fiscal 1994. The fastest growing
portion of the budget continues to be medical assistance which is proposed
to receive the largest increase, $264 million or 42.4 percent of the
proposed net increase in spending. Other program areas budgeted to
receive major increases are education -- $165 million -- and corrections
-- $126 million. The proposed budget recommends a tightening of
eligibility criteria for state-financed welfare benefits as a cost
reduction measure. Those individuals not meeting the revised criteria
would only qualify for 60 days of cash grants in a two-year period.

The Governor's proposal also includes a recommended reduction in
the corporate net income tax rate from 12.25 percent to 9.99 percent over
a three year period. The corporate tax cut and a proposed increase in
poverty exemption for the personal income tax are estimated to cost $124.7
million in fiscal 1995.

The recommended budget includes Commonwealth revenue growth of
4.7 percent without the effect of the proposed tax reduction. The revenue
estimate is based on the expectation of a continued slow national economic
recovery and continued economic growth of the Pennsylvania economy at a
rate slightly below the national rate. Total estimated Commonwealth
revenue, adjusted for refunds and the proposed tax reduction, is $15,400
million.

The General Assembly is conducting hearings to review the
Governor's proposed budget.

Tax Structure. The Commonwealth, through its principal
operating funds -- the General Fund, the Motor License Fund and the State
Lottery Fund -- receives over 57 percent of its revenues from taxes levied
by the Commonwealth. Interest earnings, licenses and fees, lottery ticket
sales, liquor store profits, miscellaneous revenues, augmentations and
federal government grants supply the balance of receipts to these funds.

Tax and fee proceeds relating to motor fuels and vehicles are
constitutionally dedicated for highway purposes and are deposited into the
Motor License Fund. Lottery ticket sale revenues are deposited into the
State Lottery Fund and are reserved by statute for programs to benefit
senior citizens. Revenues, other than those specified to be deposited in
a particular fund, are deposited into the General Fund.

The major tax sources for the General Fund of the Commonwealth
are the sales tax enacted in 1953, the personal income tax enacted in
1971, and the corporate net income tax which in its present form dates
back to 1935. The last restructuring of the Commonwealth's tax system
occurred with the enactment of the Tax Reform Code of 1971 that codified
many of the taxes levied by the Commonwealth.

The major tax sources for the Motor License Fund are the liquid
fuels taxes and the oil company franchise tax. The Motor License Fund
also receives revenues from fees levied on heavy trucks and from taxes on
fuels used for aviation purposes. Use of these revenues is restricted to
the repair and construction of highway bridges and aviation programs
respectively.

The Tax Stabilization Reserve Fund was established in 1986 to
provide a source of funds that can be used to alleviate emergencies
threatening the health, safety or welfare of the Commonwealth's citizens
or to offset unanticipated revenue shortfalls due to economic downturns.
Income to the fund is provided by specific appropriation from available
balances by the General Assembly, from investment income and, after fiscal
1991, by the transfer to the Tax Stabilization Reserve Fund of 10 percent
of the budgetary basis operating surplus in the General Fund at the close
of any fiscal year. In addition, the proceeds received from the
disposition of assets of the Commonwealth are also to be deposited into
the Tax Stabilization Reserve Fund. The Commonwealth has not prepared
estimates of such sales.

Assets of the Tax Stabilization Reserve Fund may be used only
upon the recommendation by the Governor and approval by the vote of
two-thirds of the members of each house of the General Assembly. In
February 1991, in response to a projected fiscal 1991 General Fund
budgetary deficit caused by lower revenues and higher expenditures than
budgeted, the Governor recommended, and the General Assembly authorized,
the available balance of $133.8 million in the Tax Stabilization Reserve
Fund be used to pay medical assistance and special education costs not
covered by budgeted funds. On December 31, 1993, the balance in the Tax
Stabilization Fund was $29.3 million.

Debt Limits and Outstanding Debt. The Pennsylvania Constitution
permits the Commonwealth to issue the following types of debt: (i) debt to
suppress insurrection or rehabilitate areas affected by disaster, (ii)
electorate approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years, and (iv) tax anticipation notes payable in
the fiscal year of issuance. All debt except tax anticipation notes must
be amortized in substantial and regular amounts.

Outstanding general obligation debt totalled $5,038.8 million on
June 30, 1993, an increase of $163.7 million from June 30, 1992. Over the
10-year period ending June 30, 1993, total outstanding general obligation
debt increased at an annual rate of 1.2 percent. Within the most recent
5-year period, outstanding general obligation debt has grown at an annual
rate of 1.4 percent.

General obligation debt for non-highway purposes of $3,643.6
million was outstanding on June 30, 1993. Outstanding debt for these
purposes increased $253.2 million since June 30, 1992, in large part due
to the recent emphasis the Commonwealth has placed on infrastructure
investment as a means to spur economic growth and to provide a higher
quality of life for Commonwealth residents. For the period ending June
30, 1993, the 10-year and 5-year average annual compounded growth rate for
total outstanding debt for non-highway purposes has been 3.5 percent and
4.4 percent, respectively. In its current debt financing plan,
Commonwealth infrastructure investment projects include improvement and
rehabilitation of existing capital facilities, such as water supply
systems and construction of new facilities, such as roads, prisons and
public buildings.

Outstanding general obligation debt for highway purposes was
$1,395.2 million on June 30, 1993, a decrease of $89.5 million from June
30, 1992. Highway outstanding debt has declined over the most recent
10-year and 5-year periods ending June 30, 1993 by an annual average rates
of 3.1 percent and 4.4 percent, respectively.

During the period from 1980 through 1986, all of the
Commonwealth's highway investment was funded from current year revenues.
Beginning in 1987, a limited return to the issuance of long-term bonds was
required to finance immediately needed repairs to highway bridges. The
highway bridge bonding program is funded from the Highway Bridge
Improvement Restricted Account within the Motor License Fund. Revenues in
this restricted account are derived from six cent per gallon surtax on
motor fuel used on Commonwealth highways by motor carriers and increased
registration fees for trucks and truck tractors weighing above 26,000
pounds. The two funding sources for the Highway Bridge Improvement
Restricted Account were enacted on July 13, 1987 to replace revenues from
an axle tax on heavy trucks which was declared unconstitutional by the
United States Supreme Court.

The Commonwealth has also issued obligations for its advance
construction interstate program (the "ACI Program") to fund the completion
of the interstate highway network in anticipation of the receipt of
reimbursements for the federally financed portion of these projects. As
of June 30, 1993, $85.5 million of ACI Program debt was outstanding.

The Commonwealth may incur debt to fund capital projects for
community colleges, highways, public improvements, transportation
assistance, flood control, redevelopment assistance, site development and
the Pennsylvania Industrial Development Authority. Before a project may
be funded, it must be itemized in a capital budget bill adopted by the
General Assembly. An annual capital budget bill states the maximum amount
of debt for capital projects that may be incurred during the current
fiscal year for projects authorized in the current or previous years'
capital budget bills. Capital projects debt is subject to a
constitutional limit on debt. As of December 31, 1993, $3,903.0 million
of capital projects debt was outstanding.

The issuance of electorate approved debt is subject to the
enactment of legislation which places on the ballot the question of
whether debt shall be incurred. Such legislation must state the purposes
for which the debt is to be authorized and, as a matter of practice,
includes a maximum amount of funds to be borrowed. Upon electorate
approval and enactment of legislation implementing the proposed
debt-funded program, bonds may be issued. As of December 31, 1993, the
Commonwealth had $893.1 million of electorate approved debt outstanding.

Debt issued to rehabilitate areas affected by disasters is
authorized by specific legislation. The Commonwealth had $79.3 million of
disaster relief debt outstanding as of December 31, 1993.

Due to the timing of major tax payment dates, the Commonwealth's
cash receipts are generally concentrated in the last four months of the
fiscal year, from March through June. Disbursements are distributed more
evenly throughout the fiscal year. As a result, operating cash shortages
can occur during certain months of the fiscal year. The Commonwealth
engages in short-term borrowing to fund expenses within the fiscal year
through the sale of tax anticipation notes. The Commonwealth may issue
tax anticipation notes only for the account of the General Fund or the
Motor License Fund or both such funds. The principal amount issued, when
added to that outstanding, may not exceed in the aggregate 20 percent of
the revenues estimated to accrue to the appropriate fund or both funds in
the fiscal year. Tax anticipation notes must mature within the fiscal
year in which they are issued. The Commonwealth is not permitted to fund
deficits between fiscal years with any form of debt. All year-end deficit
balances must be funded within the succeeding fiscal year's budget. The
Commonwealth has issued $400.0 million of tax anticipation notes for the
account of the General Fund for fiscal 1994, all of which are currently
outstanding. All such notes will mature on June 30, 1994 and will be paid
from fiscal 1994 General Fund receipts.

Pending the issuance of bonds, the Commonwealth may issue bond
anticipation notes subject to the applicable statutory and constitutional
limitations generally imposed on bonds. The term of such borrowings may
not exceed three years. Currently, there are no bond anticipation notes
outstanding.

Certain state-created agencies have statutory authority to incur
debt for which state appropriations to pay debt service thereon is not
required. The debt of these agencies is supported by assets of, or
revenues derived from, the various projects financed and is not an
obligation of the Commonwealth. Some of these agencies, however, are
indirectly dependent on Commonwealth appropriations. These entities
include: Delaware River Joint Toll Bridge Commission, Delaware River Port
Authority, Pennsylvania Energy Development Authority, Pennsylvania Higher
Education Assistance Agency, Pennsylvania Higher Educational Facilities
Authority, Pennsylvania Industrial Development Authority, Pennsylvania
Infrastructure Investment Authority, Pennsylvania State Public School
Building Authority, Pennsylvania Turnpike Commission, the Philadelphia
Regional Port Authority and the Pennsylvania Economic Development
Financing Authority. As of December 31, 1993, the aggregate outstanding
indebtedness of these entities was $5,767.7 million.

The Pennsylvania Housing Finance Agency ("PHFA"), as of
December 31, 1993, had $2,052.5 million of revenue bonds and $13.0 million
of notes outstanding. The statute creating PHFA provides that if there is
a potential deficiency in the capital reserve fund or if funds are
necessary to avoid default on interest, principal or sinking fund payments
on bonds or notes of PHFA, the Governor, upon notification from the PHFA,
shall place in the budget of the Commonwealth for the next succeeding year
an amount sufficient to make up any such deficiency or to avoid any such
default. The budget as finally adopted by the General Assembly may or may
not include the amount so placed therein by the Governor. PHFA is not
permitted to borrow additional funds so long as any deficiency exists in
the capital reserve fund.

The Hospitals and Higher Education Facilities Authority of
Philadelphia, as of June 30, 1993, had $21.1 million of bonds outstanding
which benefit from a moral obligation of the Commonwealth's Department of
Public Welfare to request a budget appropriation to make up any deficiency
in the debt service reserve fund for said bonds. The budget as finally
adopted may or may not include the amount requested.

The Commonwealth, through several of its departments and
agencies, has entered into various agreements to lease, as lessee, certain
real property and equipment and to make lease rental payments. Some of
those lease payments are pledged as security for various outstanding debt
obligations issued by certain public authorities or other entities within
the state. All lease payments due from Commonwealth departments and
agencies are subject to and dependent upon an annual spending
authorization approved through the Commonwealth's annual budget process.
The Commonwealth is not required by law to appropriate or otherwise
provide moneys from which the lease payments are to be paid. The
obligations to be paid from such lease payments are not bonded debt of the
Commonwealth.

The Commonwealth maintains contributory benefit pension plans
covering all state employees, public school employees and employees of
certain other state-related organizations. Unfunded actuarial accrued
liabilities for the Public School Employees' Retirement Fund as of June
30, 1993 were $4,359 million, and for the State Employees' Retirement Fund
were $281 million as of December 31, 1992.

Local Finance. The Local Government Unit Debt Act (Act 52 of
1978) (the "Debt Act") establishes debt limits for local government units.
Local government units include municipalities (except a first class city
or county), school districts and intermediate units. The Act establishes
three classes of debt for a local government unit: (i) electoral debt
(debt incurred with the approval of the electors of the municipality for
which there is no limitation on the amount that may be incurred); (ii)
nonelectoral debt (debt of a local government unit not being electoral or
lease rental debt); (iii) lease rental debt (the principal amount of debt
of an authority organized by a municipality or debt of another local
government unit, which debt is to be repaid by the local government unit
through a lease, subsidy contract, guarantee or other form of agreement
evidencing acquisition of a capital asset, payable or which may be payable
out of tax revenues and other general revenues. Each local government
unit is subject to a limitation as to the amount of class "ii" and class
"iii" debt which may be issued which is based upon such local government
unit's Borrowing Base.

Borrowing Base is defined in the Debt Act as the annual
arithmetic average of the total revenues for the three full fiscal years
ended next preceding the date of the incurring of nonelectoral debt or
lease rental debt. Total revenues for the purposes of the Debt Act
excludes, inter alia, certain state and federal subsidies and
reimbursements, certain pledged revenues, interest on pledged funds and
nonrecurring items.

The debt limitations applicable to the various local government
units are set forth below:

Nonelectoral Nonelectoral plus
Lease Rental
First Class
School District 100% of Borrowing Base 200% of Borrowing Base

County 300% of Borrowing Base 400% of Borrowing Base

Other 250% of Borrowing Base 350% of Borrowing Base

A county may utilize an additional debt limit of 100% of its
Borrowing Base for additional nonelectoral or additional lease rental
debt, or both, if such county has assumed countywide responsibility for
hospitals and other public health services, air and water pollution
control, flood control, environmental protection, water distribution and
supply systems, sewage and refuse collection and disposal systems,
education at any level, highways, public transportation, or port
operations, but such additional debt limit may be so utilized only to
provide funds for and towards the costs of capital facilities for any or
any combination of the foregoing purposes.

City of Philadelphia. The City of Philadelphia ("Philadelphia")
is the largest city in the Commonwealth, with an estimated population of
1,585,577 according to the 1990 Census. Philadelphia functions both as a
city of the first class and a county for the purpose of administering
various governmental programs.

For the fiscal year ending June 30, 1991, Philadelphia
experienced a cumulative General Fund balance deficit of $153.5 million.
The audit findings for the fiscal year ending June 30, 1992, place the
Cumulative General Fund balance deficit at $224.9.

Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class
cities in remedying fiscal emergencies was enacted by the General Assembly
and approved by the Governor in June 1991. PICA is designed to provide
assistance through the issuance of funding debt to liquidate budget
deficits and to make factual findings and recommendations to the assisted
city concerning its budgetary and fiscal affairs. An intergovernmental
cooperation agreement between Philadelphia and PICA was approved by City
Council on January 3, 1992, and approved by the PICA Board and signed by
the Mayor on January 8, 1992. At this time, Philadelphia is operating
under a five year fiscal plan approved by PICA on April 6, 1992. Full
implementation of the five year plan was delayed due to labor negotiations
that were not completed until October 1992, three months after the
expiration of the old labor contracts. The terms of the new labor
contracts are estimated to cost approximately $144.0 million more than
what was budgeted in the original five year plan. An amended five year
plan was approved by PICA in May 1993. The audit findings show a surplus
of approximately $3 million for the fiscal year ending June 30, 1993. The
fiscal 1994 budget projects no deficit and a balanced budget for the year
ending June 30, 1994. The Mayor presented the latest update of the five
year financial plan on January 13, 1994; it will be considered by PICA in
the spring of 1994.

In June 1992, PICA issued $474,555,000 of its Special Tax
Revenue Bonds to provide financial assistance to Philadelphia and to
liquidate the cumulative General Fund balance deficit. In July 1993, PICA
issued $643,430,000 of Special Tax Revenue Bonds to refund certain general
obligation bonds of the city and to fund additional capital projects.

Litigation. According to the Preliminary Official Statement
dated March 9, 1994 describing General Obligation Bonds, First Series of
1994 of the Commonwealth of Pennsylvania, the Office of Attorney General
and the Office of General Counsel have reviewed the status of pending
litigation against the Commonwealth, its officers and employees, and have
identified the following cases as ones where an adverse decision could
materially affect the Commonwealth's governmental operations. Listed
below are all litigation items so identified that may have a material
effect on government operations of the Commonwealth and consequently, the
Commonwealth's ability to pay debt service on its obligations.

Under Act No. 1978-152 approved September 28, 1978, as amended,
the General Assembly approved a limited waiver of sovereign immunity.
Damages for any loss are limited to $250,000 for each person and
$1,000,000 for each accident. The Supreme Court of Pennsylvania has held
that this limitation is constitutional. Approximately 3,500 suits against
the Commonwealth remain open. Tort claim payments for the departments and
agencies, other than the Department of Transportation, are paid from
departmental and agency operating and program appropriations. Tort claim
payments for the Department of Transportation are paid from an
appropriation of $17.5 million from the Motor License Fund for fiscal
1993. The Motor License Fund tort claim appropriation for fiscal 1994 has
been increased by 83 percent to $32.0 million to fund possibly higher and
more numerous payments resulting from recent decisions by the Pennsylvania
Supreme Court, including Woods v. PaDOT, that will affect the Department
of Transportation's liability. The Woods v. PaDOT ruling changes the
computation for delay damages by using the jury award as the base rather
than the damage limits specified in Act No. 1978-152.

Baby Neal v. Commonwealth

In April of 1990, the American Civil Liberties Union ("ACLU")
and various named plaintiffs filed a lawsuit against the Commonwealth in
federal court seeking an order requiring the Commonwealth to provide
additional funding for child welfare services. No figures for the amount
of funding sought are available. A similar lawsuit filed in the
Commonwealth Court, captioned as The City of Philadelphia, Hon. Wilson
Goode v. Commonwealth of Pennsylvania, Hon. Robert P. Casey, was resolved
through a court approved settlement providing, inter alia, for more
Commonwealth funding for these services for fiscal year 1991 as well as a
commitment to pay to counties $30.0 million over five years. The
Commonwealth is now seeking dismissal of the federal action based on,
among other things, the settlement of the Commonwealth Court case.

In January of 1992, the U.S. District Court, per Judge Kelly,
denied the ACLU's motion for class certification and held that the "next
friends" seeking to represent the interests of the 16 minor plaintiffs in
the case were inadequate representatives. The Commonwealth filed a motion
for summary judgment on most of the counts in the ACLU's complaint on the
basis of, among other things, Suter v. Artist M.. After the motion for
summary judgment was filed, the ACLU filed a renewed motion to certify
sub-classes. The court stayed decision on that motion pending decision on
the motion for summary judgment.

On April 12, 1993, the court issued an order granting and
denying in part the motion for summary judgment. The court dismissed all
claims except for the constitutional claims of some of the plaintiffs to
adequate care while in foster care and to procedural due process. In
addition, the court did not dismiss the claims of two plaintiffs under the
Americans with Disabilities Act.

The case will now be scheduled for trial.

County of Allegheny v. Commonwealth of Pennsylvania

On December 7, 1987, the Supreme Court of Pennsylvania held in
County of Allegheny v. Commonwealth of Pennsylvania, that the statutory
scheme for county funding of the judicial system is in conflict with the
Pennsylvania Constitution. However, the Supreme Court of Pennsylvania
stayed its judgment to afford the General Assembly an opportunity to enact
appropriate funding legislation consistent with its opinion and ordered
that the prior system of county funding shall remain in place until this
is done. Allegheny County, on February 12, 1991, filed a motion in the
Supreme Court of Pennsylvania to lift the stay and enforce the judgment.
The Supreme Court subsequently denied the motion.

On March 3, 1989, the City of Philadelphia, Allegheny County,
and the state County Commissioner's Association filed suit in the Supreme
Court of Pennsylvania to require the General Assembly to appropriate the
funds required by the Supreme Court of Pennsylvania. That suit was
summarily dismissed on March 31, 1989. On February 14, 1991, the
Pennsylvania State Association of County Commissioners and the Counties of
Blair, Bucks, Erie, Huntington and Perry filed in the Commonwealth Court
of Pennsylvania an action for declaratory judgment requesting an order
that the Commonwealth be required to provide funds for the operation of
the courts of common pleas in accordance with the County of Allegheny
decision. These parties also requested the Supreme Court of Pennsylvania
to assume plenary jurisdiction over their case. The Supreme Court of
Pennsylvania refused to do so, and these parties have withdrawn the
Commonwealth Court action.

On October 5, 1992, the Pennsylvania State Association of County
Commissioners, along with Allegheny, Beaver, Clarion, Forest, Tioga and
Washington counties, filed in the Supreme Court of Pennsylvania a motion
to enforce judgment seeking an order that would direct the Commonwealth to
restore funding for local courts and district justices to levels existing
in 1987. The Commonwealth has filed a response opposing the motion. By
order dated May 28, 1993, the motion to enforce judgment was denied.

On December 7, 1992, the State Association of County
Commissioners filed a new action in mandamus seeking to compel the
Commonwealth to comply with the decision in County of Allegheny. The
Commonwealth has filed a response in opposition to the new action.

The General Assembly has yet to consider legislation
implementing the Supreme Court of Pennsylvania's judgment.

First National Bank of Fredericksburg, Fidelity Bank, and Equibank v.
Commonwealth

First National Bank of Fredericksburg challenged the con-
stitutionality of the single excise tax which was levied on banking firms
in 1983 by the Commonwealth to recover from each bank the amounts paid in
refunds to each bank for the bank shares tax previously ruled
unconstitutional in Dale National Bank v. Commonwealth. Dale held that
federal obligations may not be considered in determining the base of the
bank shares tax. On February 3, 1989, the Supreme Court of Pennsylvania
affirmed the order of the Commonwealth Court, which held that the single
excise tax, as applied to the First National Bank of Fredericksburg,
violated the bank's due process rights and the doctrine of separation of
powers.

On July 1, 1989, the Governor signed into law Act 1989-21. This
law, which revised the bank shares tax by adjusting the tax base and
increasing the tax rate, provided additional revenues to the Commonwealth
during fiscal year 1990 sufficient to permit the payment of refund
liabilities from the single excise tax and maintain a projected positive
budget balance for the General Fund.

After the first installment of the revised bank shares tax for
1989, due October 30, 1989, First National Bank of Fredericksburg,
Fidelity Bank, and Equibank filed actions against the Commonwealth
contesting the constitutionality of Act 1989-21. First National Bank of
Fredricksburg has since withdrawn its case and the Equibank case is also
expected to be withdrawn. Argument was held in the Fidelity case on
March 16, 1993. The Fidelity litigation potentially exposes the
Commonwealth to an estimated $1.024 billion through December 1993, plus
appropriate statutory interest.

On December 6, 1993, a single judge of the Commonwealth Court
issued a decree nisi in Fidelity wherein he concluded that the
Commonwealth had an obligation to actually pay Fidelity its single excise
tax refunds (approximately $13 million), rather than merely apply the
refunds as credits against Fidelity's 1989 Amended Bank Shares Tax
liability. The judge specifically declined to address the issue of
whether the 1989 Amended Bank Shares Tax was constitutional. The
Commonwealth is seeking further review of this decision in the
Commonwealth Court.

Pennsylvania Association of Rural and Small Schools (PARSS) v. Casey

This action was filed in January, 1991 by an association of
rural and small schools, several individual school districts, and a group
of parents and students, against Governor Robert P. Casey and Secretary of
Education Donald M. Carroll, Jr. The action challenges the
constitutionality of the Commonwealth's system for funding local school
districts. The action consists of two parallel cases, one in the
Commonwealth Court of Pennsylvania, and one in the United States District
Court for the Middle District of Pennsylvania. The federal court case has
been indefinitely stayed, pending resolution of the state court case. The
state court case is in the pretrial discovery stage. The trial has not
yet been scheduled.

Temple University Hospital v. White

Temple is one of nine federal lawsuits in which approximately
150 hospitals have challenged Pennsylvania's fiscal 1989 and fiscal 1990
reimbursement rates for inpatient hospital services provided to needy
citizens under the Medical Assistance program. In January 1990, the
United States District Court of the Eastern District of Pennsylvania
declared in the Temple case that Pennsylvania's formula for reimbursing
acute care hospitals did not comply with federal law and ordered the
Commonwealth to (1) design a new state plan and (2) pay Temple enhanced
rates. In a set of subsequent "interim relief" orders, the court ordered
the Commonwealth to pay all litigating hospitals enhanced payment rates as
well.

To comply with the district court's orders, Pennsylvania (1)
submitted a new state plan to the Health Care Financing Administration,
U.S. Department of Health and Human Services ("HCFA") on September 30,
1990 and (2) began paying Medicaid reimbursement rates increased by
approximately 13 percent to acute care hospitals.

The Third Circuit affirmed the district court's holding in
Temple. In January 1992, the United States Supreme Court denied
certiorari. There is no immediate adverse impact because the
Commonwealth, as described below, has settled the case. Should a
component of the settlement agreement unravel, the Commonwealth will have
to continue to pay enhanced payment rates and to implement a new state
plan.

In May of 1991, the hospitals and the Commonwealth settled the
lawsuits by agreeing to, among other things, engage in a pooling
transaction which will permit the Commonwealth to secure additional
federal funds to pay for enhanced rates of reimbursement. The Stipulation
of Settlement entered into in this case and related cases expired on June
30, 1993. Under the terms of the Agreement, the litigation is subject to
dismissal unless there are outstanding matters regarding the litigation
before the Court. There is currently pending before the U.S. Court of
Appeals for the Third Circuit, an appeal from a decision by the District
Court denying a Motion to Compel filed by certain hospitals in related
litigation. Once that appeal is disposed of, the parties can move to
dismiss the action before the District Court.

Philadelphia Suburban Corp. v. Commonwealth

On December 10, 1993, the Pennsylvania Supreme Court overturned
a decision of the Commonwealth Court ruling that dividends received by a
corporate taxpayer which are accounted for under the equity method of
accounting are not includible in average net income for purposes of
determining capital stock value under the fixed formula. The Commonwealth
Court held that the Revenue Department regulation which requires that book
income be adjusted to include dividends accounted for under the equity
method is contrary to the capital stock tax law which requires that net
income be computed on an unconsolidated basis exclusive of the net income
or loss of corporations in which the taxpayer has an investment. The
Pennsylvania Supreme Court's decision permits the Commonwealth to release
$147 million held in reserve for potential tax refund.

Austin v. Department of Corrections, et al.

In November 1990, the American Civil Liberties Union ("ACLU")
brought a class action lawsuit on behalf of the inmate populations in
thirteen Commonwealth correctional institutions.

The lawsuit challenges the conditions of confinement at each
institution and includes specified allegations of overcrowding,
deficiencies in medical and mental health services, inadequate
environmental conditions, disparate treatment of HIV positive prisoners
and other assorted claims.

No damages are sought. The ACLU is seeking injunctive relief
which would modify conditions, change practices and procedures and
increase the number of staff deployment. The Department of Corrections
has been ordered to implement a new policy regarding detection and
prevention of tuberculosis. If injunctive relief is granted, the cost to
the Commonwealth may be substantial. The Commonwealth may incur
significant capital and personnel costs after this fiscal year ranging in
the millions of dollars.

Trial of this matter will take place in four distinct phases:
Corrections, Environmental, Medical and Mental Health. Trial of the first
phase (Corrections) began on December 6, 1993. The court recessed on
January 3, 1994, prompted by settlement negotiations between the parties,
and trial will resume if a settlement is not reached.

Scott v. Snider

In 1991, a consortium of public interest law firms filed a class
action suit, Scott v. Snider, against various Commonwealth officers,
alleging that the Commonwealth of Pennsylvania had failed to comply with a
1989 federal mandate to provide and pay for early and periodic screening,
diagnostic, and treatment services for all Medicaid-eligible children
under the age of 21. If the federal court were to grant all of the relief
that plaintiffs are seeking, the Commonwealth would be obligated, among
other things, (1) to substantially revise the methods by which it
presently identifies children in need of treatment and (2) to expand the
scope of services and treatment presently provided to such children. It
is estimated that such relief, if granted in toto, would cost the
Commonwealth approximately $98 million. On July 7, 1993, an Intervening
Complaint was filed by the City and County of Philadelphia, Allegheny
County, Pennsylvania State Association of County Commissioners, et al.

The Sponsor believes the information summarized above describes
some of the more significant events relating to the Pennsylvania Trust.
The sources of such information are the official statements of issuers
located in Pennsylvania as well as other publicly available documents.

Virginia Trust

Investors should be aware of certain factors that might affect
the financial condition of issuers of Virginia municipal securities.

Bonds in the Virginia Trust may include primarily debt
obligations of the subdivisions of the Commonwealth of Virginia issued to
obtain funds for various public purposes, including the construction of a
wide range of public facilities such as airports, bridges, highways,
schools, streets and water and sewer works. Other purposes for which
bonds may be issued include the obtaining of funds to lend to public or
private institutions for the construction of facilities such as
educational, hospital, housing, and solid waste disposal facilities. The
latter are generally payable from private sources which, in varying
degrees, may depend on local economic conditions, but are not necessarily
affected by the ability of the Commonwealth of Virginia and its political
subdivisions to pay their debts. Therefore, the general risk factors as
to the credit of the State or its political subdivision discussed herein
may not be relevant to the Virginia Trust.

The Constitution of Virginia limits the ability of the
Commonwealth to create debt. The Constitution requires a balanced budget.
The Commonwealth has maintained a high level of fiscal stability for many
years due in large part to conservative financial operations and diverse
sources of revenue. The economy of the Commonwealth of Virginia is based
primarily on manufacturing, the government sector (including defense),
agriculture, mining and tourism. The Federal Base Closing Commission has
ordered that a number of military facilities in Virginia be closed or
reduced. As a result of recessionary conditions, the Commonwealth has
experienced for the past several years severe revenue shortfalls, which
have necessitated cutbacks of expenditures in the budgets for the
1992-1994 biennia. In the 1994 General Assembly session, the 1992-1994
budget was amended to reflect $96,000,000 in additional revenues.

In Davis v. Michigan (decided March 28, 1989), the United States
Supreme Court ruled unconstitutional Michigan's statute exempting from
state income tax the retirement benefits paid by the state or local
governments and not exempting retirement benefits paid by the federal
government. In Harper v. Virginia Department of Taxation (decided
June 18, 1993), the United States Supreme Court held, in a suit involving
claims for refunds by Federal retirees living in Virginia that Virginia
State income tax Statutes violated the principles of Davis v. Michigan,
but remanded for further relief so long as the relief was consistent with
Federal due process. If the courts ultimately rule that the Commonwealth
must make full refunds of taxes imposed prior to Davis v. Michigan, the
State has estimated that the potential financial impact on the
Commonwealth based on its review of claims for refunds by federal
pensioners (including interest payable calculated as of December 31, 1993)
is approximately $700.0 million.

The Commonwealth currently has a Standard & Poor's rating of AAA
and a Moody's rating of Aaa on its general obligation bonds. There can be
no assurance that the economic conditions on which these ratings are based
will continue or that particular bond issues may not be adversely affected
by changes in economic or political conditions. Further, the credit of
the Commonwealth is not material to the ability of political subdivisions
and private entities to make payments on the obligations described below.

General obligations of cities, towns or counties in Virginia are
payable from the general revenues of the entity, including ad valorem tax
revenues on property within the jurisdiction. The obligation to levy
taxes could be enforced by mandamus, but such a remedy may be
impracticable and difficult to enforce. Under section 15.1-227.61 of the
Code of Virginia of 1950, as amended, a holder of any general obligation
bond in default may file an affidavit setting forth such default with the
Governor. If, after investigating, the Governor determines that such
default exists, he is directed to order the State Comptroller to withhold
State funds appropriated and payable to the entity and apply the amount so
withheld to unpaid principal and interest. The Commonwealth, however, has
no obligation to provide any additional funds necessary to pay such
principal and interest.

Revenue bonds issued by Virginia political subdivisions include
(1) revenue bonds payable exclusively from revenue producing governmental
enterprises and (2) industrial revenue bonds, college and hospital revenue
bonds and other "private activity bonds" which are essentially
non-governmental debt issues and which are payable exclusively by private
entities such as non-profit organizations and business concerns of all
sizes. State and local governments have no obligation to provide for
payment of such private activity bonds and in many cases would be legally
prohibited from doing so. The value of such private activity bonds may be
affected by a wide variety of factors relevant to particular localities or
industries, including economic developments outside of Virginia.

Virginia municipal securities that are lease obligations are
customarily subject to "non-appropriation" clauses which allow the
municipality to terminate its lease obligations if moneys to make the
lease payments are not appropriated for that purpose. See "Objectives".
Legal principles may restrict the enforcement of provisions in lease
financing limiting the municipal issuer's ability to utilize property
similar to that leased in the event that debt service is not appropriated.

No Virginia law expressly authorizes Virginia political
subdivisions to file under Chapter 9 of the United States Bankruptcy Code,
but recent case law suggests that the granting of general powers to such
subdivisions may be sufficient to permit them to file voluntary petitions
under Chapter 9. Bonds payable exclusively by private entities may be
subject to the provisions of the United States Bankruptcy Code other than
Chapter 9.

Virginia municipal issues are generally not required to provide
ongoing information about their finances and operations to holders of
their debt obligations, although a number of cities, counties and other
issuers prepare annual reports.

Although revenue obligations of the Commonwealth or its
political subdivisions may be payable from a specific project or source,
including lease rentals, there can be no assurance that future economic
difficulties and the resulting impact on Commonwealth and local government
finances will not adversely affect the market value of the portfolio of
the Fund or the ability of the respective obligors to make timely payments
of principal and interest on such obligations.

The Sponsors believe the information summarized above describes
some of the more significant events relating to the Virginia Trust.
Sources of such information are the official statements of the issuers
located in the Commonwealth of Virginia, as well as other publicly
available documents and information. While the Sponsors have not
independently verified such information, they have no reason to believe it
is not correct in all material respects.

PUBLIC OFFERING

Offering Price

The secondary market Public Offering Price per Unit of each
Trust is computed by adding to the aggregate bid price of the Bonds in
such Trust divided by the number of Units thereof outstanding, an amount
equal to 5.820% of such aggregate offering price of the Bonds per Unit.
This amount is equal to a sales charge of 5-1/2% of the Public Offering
Price. A proportionate share of accrued interest on the Bonds to the
expected date of settlement for the Units is added to the Public Offering
Price. Accrued interest is the accumulated and unpaid interest on Bonds
from the last day on which interest was paid and is initially accounted
for daily by each Trust at the daily rate set forth under "Summary of
Essential Information" for each Trust in Part A of this Prospectus. This
daily rate is net of estimated fees and expenses. The secondary market
Public Offering Price can vary on a daily basis from the amount stated on
the cover of Part A of this Prospectus in accordance with fluctuations in
the prices of the Bonds. The price to be paid by each investor will be
computed on the basis of an evaluation made as of the day the Units are
purchased. The aggregate bid price evaluation of the Bonds is determined
in the manner set forth under "Trustee Redemption."

The Evaluator may obtain current prices for the Bonds from
investment dealers or brokers (including the Sponsors) that customarily
deal in tax-exempt obligations or from any other reporting service or
source of information which the Evaluator deems appropriate.

Accrued Interest

An amount of accrued interest which represents accumulated
unpaid or uncollected interest on a bond from the last day on which
interest was paid thereon will be added to the Public Offering Price and
paid by the Certificateholder at the time Units are purchased. Since each
Trust normally receives the interest on the Bonds twice a year and the
interest on the Bonds is accrued on a daily basis (this daily rate is net
of estimated fees and expenses), each Trust will always have an amount of
interest earned but uncollected by, or unpaid to, the Trustee. A Certifi-
cateholder will not recover his proportionate share of accrued interest
until the Units of a Trust are sold or redeemed, or such Trust is
terminated. At that time, the Certificateholder will receive his
proportionate share of the accrued interest computed to the settlement
date in the case of sale or termination and to the date of tender in the
case of redemption.

Employee Discounts

Employees (and their families) of Bear, Stearns & Co. Inc.,
Gruntal and Co., Incorporated and of any underwriter of any Trust,
pursuant to employee benefit arrangements, may purchase Units of a Trust
at a price equal to the bid side evaluation of the underlying securities
in such Trust divided by the number of Units outstanding plus a reduced
sales charge of $10.00 per Unit. Such arrangements result in less selling
effort and selling expenses than sales to employee groups of other
companies. Resales or transfers of Units purchased under the employee
benefit arrangements may only be made through the Sponsors' secondary
market, so long as it is being maintained.

Distribution of Units

Certain banks and thrifts will make Units of the Trust available
to their customers on an agency basis. A portion of the sales charge paid
by their customers is retained by or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting Units; however,
the Glass-Steagall Act does permit certain agency transactions and the
banking regulators have indicated that these particular agency
transactions are permitted under such Act. In addition, state securities
laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.

The Sponsors intend to qualify the Units of each State Trust for
sale in only the State for which such Trust is named and certain other
states and in the case of the Municipal Securities Trust and the Municipal
Securities Discount Trust to qualify the Units for sale in substantially
all States through dealers who are members of the National Association of
Securities Dealers, Inc. Units may be sold to dealers at prices which
represent a concession of up to $33.00 per Unit, subject to the Sponsors'
right to change the dealers' concession from time to time. In addition,
for transactions of 1,000,000 Units or more, the Sponsor intends to
negotiate the applicable sales charge and such charge will be disclosed to
any such purchaser. Such Units may then be distributed to the public by
the dealers at the Public Offering Price then in effect. The Sponsors
reserve the right to reject, in whole or in part, any order for the
purchase of Units.

Sponsors' Profits

The Sponsors will receive a gross commission on all Units sold
in the secondary market equal to the applicable sales charge in each
transaction (see "Offering Price"). In addition, in maintaining a market
for the Units (see "Sponsors' Repurchase"), the Sponsors will realize
profits or sustain losses in the amount of any difference between the
price at which they buy Units and the price at which they resell such
Units.

Participants in the "Total Reinvestment Plan" can designate a
broker as the recipient of a dealer concession (see "Total Reinvestment
Plan").

Comparison of Public Offering Price, Sponsors'
Repurchase Price and Redemption Price

The secondary market Public Offering Price of Units of each
Trust will be determined on the basis of the current bid prices of the
Bonds in each Trust plus the applicable sales charge. Value at which
Units may be resold in the secondary market or redeemed will be determined
on the basis of the current bid prices of such Bonds without any sales
charge. On the Evaluation Date, the Public Offering Price per Unit of
each Trust (based on the bid price of the Bonds in such Trust plus the
sales charge) each exceeded the Repurchase and Redemption Price per Unit
(based upon the bid price of the Bonds in each Trust without the sales
charge) by the amounts shown under "Summary of Essential Information" for
each Trust in Part A of this Prospectus. For this reason, among others
(including fluctuations in the market prices of such Bonds and the fact
that the Public Offering Price includes the 5-1/2% sales charge), the
amount realized by a Certificateholder upon any redemption of Units may be
less than the price paid for such Units.

ESTIMATED LONG TERM RETURN AND ESTIMATED CURRENT RETURN

The rate of return on an investment in Units of each Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term
Return".

Estimated Long Term Return is calculated by: (1) computing the
yield to maturity or to an earlier call date (whichever results in a lower
yield) for each Bond in a Trust's portfolio o accordance with accepted
bond practices, which practices take into account not only the interest
payable on the Bond but also the amortization of premiums or accretion of
discounts, if any; (2) calculating the average of the yields for the Bonds
in each Trust's portfolio 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 (thus creating an average yield for the portfolio of
each Trust); and (3) reducing the average yield for the portfolio of each
Trust in order to reflect estimated fees and expenses of that Trust and
the maximum sales charge paid by Unitholders. The resulting Estimated
Long Term Return represents a measure of the return to Unitholders earned
over the estimated life of each Trust. The Estimated Long Term Return as
of the day prior to the Evaluation Date is stated for each Trust under
"Summary of Essential Information" in Part A.

Estimated Current Return is computed by dividing the Estimated
Net Annual Interest Income per Unit by the Public Offering Price per Unit.
In contrast to the Estimated Long Term Return, the Estimated Current
Return does not take into account the amortization of premium or accretion
of discount, if any, on the Bonds in the portfolios of each Trust.
Moreover, because interest rates on Bonds purchased at a premium are
generally higher than current interest rates on newly issued bonds of a
similar type with comparable rating, the Estimated Current Return per Unit
may be affected adversely if such Bonds are redeemed prior to their
maturity. On the day prior to the Evaluation Date, the Estimated Net
Annual Interest Income per Unit divided by the Public Offering Price
resulted in the Estimated Current Return stated for each Trust under
"Summary of Essential Information" in Part A.

The Estimated Net Annual Interest Income per Unit of each Trust
will vary with changes in the fees and expenses of the Trustee and the
Evaluator applicable to each Trust and with the redemption, maturity, sale
or other disposition of the Bonds in each Trust. The Public Offering
Price will vary with changes in the bid prices of the Bonds. Therefore,
there is no assurance that the present Estimated Current Return or
Estimated Long Term Return will be realized in the future.

A schedule of cash flow projections is available from the
Sponsors upon request.

RIGHTS OF CERTIFICATEHOLDERS

Certificates

Ownership of Units of each Trust is evidenced by registered
Certificates executed by the Trustee and the Sponsors. Certificates may
be issued in denominations of one or more Units and will bear appropriate
notations on their faces indicating which plan of distribution has been
selected by the Certificateholder. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed and/or
accompanied by a written instrument or instrument of transfer. Although
no such charge is presently made or contemplated, the Trustee may require
a Certificateholder to pay $2.00 for each Certificate reissued or
transferred and any governmental charge that may be imposed in connection
with each such transfer or interchange. Mutilated, destroyed, stolen or
lost Certificates will be replaced upon delivery of satisfactory indemnity
and payment of expenses incurred.

Interest and Principal Distributions

Interest received by each Trust is credited by the Trustee to
the Interest Account of such Trust and a deduction is made to reimburse
the Trustee without interest for any amounts previously advanced.
Proceeds representing principal received by each Trust from the maturity,
redemption, sale or other disposition of Bonds are credited to the
Principal Account of such Trust.

Distributions to each Certificateholder of each Trust from the
Interest Account of such Trust are computed as of the close of business on
each Record Date for the following Payment Date and consist of an amount
substantially equal to one-twelfth, one-half or all of such Certificate-
holder's pro rata share of the Estimated Net Annual Interest Income in
such Interest Account, depending upon the applicable plan of distribution.
Distributions from the Principal Account of each Trust will be computed as
of each semi-annual Record Date, and will be made to the Certificate-
holders of such State Trust on or shortly after the next semi-annual
Payment Date. Proceeds representing principal received from the
disposition of any of the Bonds between a Record Date and a Payment Date
which are not used for redemptions of Units will be held in the
appropriate Principal Account and not distributed until the second
succeeding semi-annual Payment Date. No distributions will be made to
Certificateholders electing to participate in the Total Reinvestment Plan,
except as provided thereunder. Persons who purchase Units between a
Record Date and a Payment Date will receive their first distribution on
the second Payment Date after such purchase.

Because interest payments are not received by each Trust at a
constant rate throughout the year, interest distributions may be more or
less than the amount credited to the Interest Account as of a given Record
Date. For the purpose of minimizing fluctuations in the distributions
from the Interest Account, the Trustee will advance sufficient funds as
may be necessary to provide interest distributions of approximately equal
amounts. The Trustee shall be reimbursed, without interest, for these
advances to the Interest Account. Funds which are available for future
distributions, investment in the Total Reinvestment Plan, payments of
expenses and redemptions are in accounts which are non-interest bearing to
Certificateholders and are available for use by the Trustee pursuant to
normal banking procedures.

As of the first day of each month, the Trustee will deduct from
the Interest Account and, to the extent funds are not sufficient therein,
from the Principal Account, amounts necessary to pay the expenses of the
Trust (as determined on the basis set forth under "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 applicable
taxes or other governmental charges that may be payable out of the Trust.
Amounts so withdrawn shall not be considered a part of the Trust's assets
until such time as the Trustee shall return all or any part of such
amounts to the appropriate accounts. In addition, the Trustee may
withdraw from the Interest and Principal Accounts such amounts as may be
necessary to cover redemptions of Units by the Trustee.

The estimated monthly, semi-annual or annual interest
distribution per Unit of each Trust initially will be in the amounts shown
under "Summary of Essential Information" in Part A and will change and be
reduced as Bonds mature or are redeemed, exchanged or sold, or as expenses
of each Trust fluctuate. No distribution need be made from a Principal
Account until the balance therein is an amount sufficient to distribute
$1.00 per Unit.

Distribution Elections

Interest is distributed monthly, semi-annually or annually,
depending upon the distribution applicable to the Unit Purchased. Record
Dates for interest distributions will be the first day of each month for
monthly distributions, the first day of each June and December for semi-
annual distributions and the first day of each December for annual
distributions. Payment Dates will be the fifteenth day of each month
following the respective Record Dates. Certificateholders purchasing
Units in the secondary market will initially receive distributions in
accordance with the election of the prior owner. Every October each
Certificateholder may change his distribution election by notifying the
Trustee in writing of such change between October 1 and November 1 of each
year. (Certificateholders deciding to change their election should
contact the Trustee by calling the number listed on the back cover hereof
for information regarding the procedures that must be followed in
connection with this written notification of the change of election.)
Failure to notify the Trustee on or before November 1 of each year will
result in a continuation of the plan for the following 12 months.

Records

The Trustee shall furnish Certificateholders 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. 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 Certificateholder of record of
a Trust, a statement showing (a) as to the Interest Account of such Trust:
interest received (including any earned original issue discount and
amounts representing interest received upon any disposition of Bonds and
earned original discount, if any), amounts paid for redemption of Units,
if any, deductions for applicable taxes and fees and expenses of such
Trust, 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; (b) as to such Trust's Principal
Account: the dates of disposition of any Bonds and the net proceeds
received therefrom (including any unearned original issue discount but
excluding any portion representing accrued interest), deductions for
payments of applicable taxes and fees and expenses of such Trust, amounts
paid for redemption of Units, if any, 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; (c) a list of
the Bonds held in such Trust and the number of Units thereof outstanding
on the last business day of such calendar year; (d) the Redemption Price
per Unit of such Trust based upon the last computation thereof made during
such calendar year; and (e) amounts actually distributed to Certificate-
holders of such Trust during such calendar year from the Interest and
Principal Accounts, separately stated, expressed both as total dollar
amounts and as dollar amounts representing the pro rata share of each Unit
outstanding on the last business day of such calendar year.
The Trustee shall keep available for inspection by Certificate-
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 Certificateholders, Certificates issued or
held, a current list of Bonds in the portfolio and a copy of the Trust
Agreement.

TAX STATUS

All Bonds acquired by each Trust were accompanied by copies of
opinions of bond counsel to the issuing governmental authorities given at
the time of original delivery of the Bonds to the effect that the interest
thereon is exempt from regular federal income tax and with respect to the
State Trusts from the respective State income taxes. Such interest may,
however, be subject to the federal corporate alternative minimum tax and
to state and local taxes in other jurisdictions. Neither the Sponsors nor
the Trustee nor their respective counsel have made any review of the
proceedings relating to the issuance of the Bonds or the bases for such
opinions and express no opinion as to these matters, and neither the
Trustee nor the Sponsors nor their respective counsel have made an
independent examination or verification that the federal income tax status
of the Bonds has not been altered since the time of the original delivery
of those opinions.

The Revenue Reconciliation Act of 1993 ("P.L. 103-66") was
recently enacted. P.L. 103-66 increases maximum marginal income tax rates
for individuals and corporations (generally effective for taxable years
beginning after December 31, 1992), extends the authority to issue certain
categories of tax-exempt bonds (qualified small issue bonds and qualified
mortgage bonds), limits the availability of capital gain treatment for
tax-exempt bonds purchased at a market discount, increases the amount of
Social Security benefits subject to tax (effective for taxable years
beginning after December 31, 1993) and makes a variety of other changes.
Prospective investors are urged to consult their own tax advisors as to
the effect of P.L. 103-66 on an investment in Units.

In rendering the opinion set forth below, counsel has examined
the Agreement, the final form of Prospectus dated the date hereof (the
"Prospectus") and the documents referred to therein, among others, and has
relied on the validity of said documents and the accuracy and completeness
of the facts set forth therein.

In the opinion of Battle Fowler, counsel for the Sponsors, under
existing law:

The Trust is not an association taxable as a corporation for
federal income tax purposes under the Internal Revenue Code of 1986
(the "Code"), and income received by each Trust that consists of
interest excludable from federal gross income under the Code will be
excludable from the federal gross income of the Certificateholders of
such Trust.

Each Certificateholder of a Trust will be considered the owner
of a pro rata portion of that Trust under Section 676(a) of the Code.
Thus, each Certificateholder of a Trust will be considered to have
received his pro rata share of Bond interest when it is received by
the Trust, and the entire amount of net income distributable to Cer-
tificateholders of a Trust that is exempt from federal income tax
when received by that Trust will constitute tax-exempt income when
received by the Certificateholders.

Gain (other than any earned original issue discount) realized on
sale or redemption of the Bonds or on sale of a Unit is, however,
includable in gross income for federal income tax purposes, generally
as capital gain, although gain on the disposition of a Bond or a Unit
purchased at a market discount generally will be treated as ordinary
income, rather than capital gain, to the extent of accrued market
discount. (It should be noted in this connection that such gain does
not include any amounts received in respect of accrued interest.)
Such gain may be long or short-term gain depending on the facts and
circumstances. Capital losses are deductible to the extent of
capital gains; in addition, up to $3,000 of capital losses of non-
corporate Certificateholders may be deducted against ordinary income.
Capital assets acquired on or after January 1, 1988 must be held for
more than one year to qualify for long-term capital gain treatment.
Individuals who realize long-term capital gains will be subject to a
maximum tax rate of 28% on such gain.

Each Certificateholder of a Trust will realize taxable gain or
loss when that Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity), as if the Certificateholder had
directly disposed of his pro rata share of such Bond. The gain or
loss is measured by the difference between (i) the tax cost of such
pro rata share and (ii) the amount received therefor. The Certifi-
cateholder's tax cost for each Bond is determined by allocating the
total tax cost of each Unit among all the Bonds held in each Trust
(in accordance with the portion of each Trust comprised by each
Bond). In order to determine the amount of taxable gain or loss, the
Certificateholder's amount received is similarly allocated at that
time. The Certificateholder may exclude from the amount received any
amounts that represent accrued interest or the earned portion of any
original issue discount but may not exclude amounts attributable to
market discount. Thus, when a Bond is disposed of by a Trust at a
gain, taxable gain will equal the difference between (i) the amount
received and (ii) the amount paid plus any original issue discount
(limited, in the case of Bonds issued after June 8, 1980, to the
portion earned from the date of acquisition to the date of
disposition). Gain on the disposition of a Bond purchased at a
market discount generally will be treated as ordinary income, rather
than capital gain, to the extent of accrued market discount. No
deduction is allowed for the amortization of bond premium on tax-
exempt bonds such as the Bonds in computing regular federal income
tax.

Discount generally accrues based on the principle of compounding
of accrued interest, not on a straight-line or ratable method, with
the result that the amount of earned original issue discount is less
in the earlier years and more in the later years of a bond term. The
tax basis of a discount bond is increased by the amount of accrued,
tax-exempt original issue discount thus determined. This method of
calculation will produce higher capital gains (or lower losses) to a
Certificateholder, as compared to the results produced by the
straight-line method of accounting for original issue discount, upon
an early disposition of a Bond by a Trust or of a Unit by a Certifi-
cateholder.

A Certificateholder may also realize taxable income or loss when
a Unit of a Trust is sold or redeemed. The amount received is
allocated among all the Bonds in that Trust in the same manner as
when the Trust disposes of Bonds and the Certificateholder may
exclude accrued interest and the earned portion of any original issue
discount (but not amounts attributable to market discount). The
return of a Certificateholder's tax cost is otherwise a tax-free
return of capital.

A portion of Social Security benefits is includable in gross
income for taxpayers whose "modified adjusted gross income" combined
with a portion of their benefits exceeds a base amount. The base
amount is $25,000 for an individual, $32,000 for a married couple
filing a joint return and zero for married persons filing separate
returns. Interest on tax-exempt bonds is to be added to adjusted
gross income for purposes of computing the amount of Social Security
benefits that are includible in gross income and determining whether
an individual's income exceeds the base amount above which a portion
of the benefits would be subject to tax. For taxable years beginning
after December 31, 1993, the amount of Social Security benefits
subject to tax will be increased.

Corporate Certificateholders are required to include in
corporate alternative minimum taxable income 75 percent of the amount
by which the adjusted current earnings (which will include tax-exempt
interest) of the corporation exceeds alternative minimum taxable
income (determined without regard to this item). Further, interest
on the Bonds is includible in a 0.12% additional corporate minimum
tax imposed by the Superfund Amendments and Reauthorization Act of
1986 for taxable years beginning after December 31, 1986. In
addition, in certain cases, Subchapter S corporations with
accumulated earnings and profits from Subchapter C years will be
subject to a minimum tax on excess "passive investment income" which
includes tax-exempt interest.

Under federal law, interest on Bonds in each State Trust issued
by authority of the Government of Puerto Rico is exempt from regular
federal income tax and state and local income taxes in the United
States and Puerto Rico.

The Trust is not subject to the New York State Franchise Tax on
Business Corporations or the New York City General Corporation Tax.

Messrs. Battle Fowler are also of the opinion that under the
personal income tax laws of the State and City of New York, the income of
each State Trust will be treated as the income of the Certificateholders.
Interest on the Bonds that is exempt from tax under the laws of the State
and City of New York when received by the New York Trust will retain its
status as tax-exempt interest of the Certificateholders. In addition,
non-residents of New York City will not be subject to the City personal
income tax on gains derived with respect to their Units. Non-residents of
New York State will not be subject to New York State personal income tax
on such gains unless the Units are employed in a business, trade or
occupation carried on in New York State. A New York State or New York
City resident should determine his basis and holding period for his Units
in the same manner for New York State and New York City tax purposes as
for federal tax purposes. For corporations doing business in New York
State and New York City, interest earned on state and municipal
obligations that are exempt from federal income tax, including obligations
of New York State, its political subdivisions and instrumentalities, must
be included in calculating New York State and New York City entire net
income for purposes of computing New York State franchise and New York
City (income) tax.

The exemption of interest on municipal obligations for federal
income tax purposes does not necessarily result in exemption under the
income tax laws of any state or local government. The laws of such states
and local governments vary with respect to the taxation of such
obligations. See "Rights of Certificateholders" in this Part B.

In the opinion of Brown & Wood, special counsel to the Sponsors
for California tax matters, under existing California law applicable to
individuals who are California residents:

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

Each Certificateholder of the California Trust will recognize
gain or loss when the California Trust disposes of a Bond (whether by
sale, exchange, redemption or payment at maturity) or upon the
Certificateholder's sale or other disposition of a Unit. The amount
of gain or loss for California income tax purposes will generally be
calculated pursuant to the Internal Revenue Code of 1986, as amended,
certain provisions of which are incorporated by reference under
California law.

In the opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., special counsel to the Sponsors for Florida tax matters,
under existing Florida law:

1. The Florida Trust will not be subject to income, franchise
or other taxes of a similar nature imposed by the State of Florida or
its subdivisions, agencies or instrumentalities.

2. Because Florida does not impose a personal income tax,
non-corporate Certificateholders of Units of the Florida Trust will
not be subject to any Florida income taxes with respect to (i)
amounts received by the Florida Trust on the Bonds it holds; (ii)
amounts which are distributed by the Florida Trust to non-corporate
Certificateholders of the Florida Trust; or (iii) any gain realized
on the sale or redemption of Bonds by the Florida Trust or of a Unit
of the Florida Trust by a noncorporate Certificateholder. However,
corporations as defined in Chapter 220, Florida Statutes (1991),
which are otherwise subject to Florida income taxation will be
subject to tax on their respective share of any income and gain
realized by the Florida Trust and on any gain realized on the sale or
redemption of Units of the Florida Trust by the corporate
Certificateholder.

3. The Units will be subject to Florida estate taxes only if
held by Florida residents, or if held by non-residents deemed to have
business situs in Florida. The Florida estate tax is limited to the
amount of the credit for state death taxes provided for in Section
2011 of the Internal Revenue Code of 1986, as amended.

4. Bonds issued by the State of Florida or its political
subdivisions are exempt from Florida intangible personal property
taxation under Chapter 199, Florida Statutes (1991), as amended.
Bonds issued by the Government of Puerto Rico or by the Government of
Guam, or by their authority, are exempt by Federal statute from taxes
such as the Florida intangible personal property tax. Thus, the
Florida Trust will not be subject to Florida intangible personal
property tax on any Bonds in the Florida Trust issued by the State of
Florida or its political subdivisions, by the Government of Puerto
Rico or by its authority or by the Government of Guam or by its
authority. In addition, the Units of the Florida Trust will not be
subject to the Florida intangible personal property tax if the
Florida Trust invests solely in such Florida, Puerto Rico or Guam
debt obligations.

In the opinion of Saul, Ewing, Remick & Saul, special counsel to
the Sponsors on Pennsylvania tax matters, under existing law:

(1) Units evidencing fractional undivided interests in the
Trust, to the extent represented by obligations issued by the
Commonwealth of Pennsylvania, any public authority, commission, board
or other agency created by the Commonwealth of Pennsylvania, any
political subdivision of the Commonwealth of Pennsylvania or any
public authority created by any such political subdivision, or by the
Government of Puerto Rico or its public authorities, are not taxable
under any of the personal property taxes presently in effect in
Pennsylvania;

(2) Distributions of interest income to Certificateholders that
would not be taxable if received directly by a Pennsylvania resident
are not subject to personal income tax under the Pennsylvania Tax
Reform Code of 1971; nor will such interest be taxable under
Philadelphia School District Investment Income Tax imposed on
Philadelphia resident individuals;

(3) A Certificateholder which is an individual, estate or trust
will have a taxable event under the Pennsylvania state and local
income tax referred to in the preceding paragraph upon the redemption
or sale of Units;

(4) A Certificateholder which is a corporation will have a
taxable event under the Pennsylvania Corporate Net Income Tax or, if
applicable, the Mutual Thrift Institutions Tax, upon the redemption
or sale of its Units. Interest income distributed to Certificate-
holder which are corporations is not subject to Pennsylvania
Corporate Net Income Tax or Mutual Thrift Institutions Tax. However,
banks, title insurance companies and trust companies may be required
to take the value of Units into account in determining the taxable
value of their shares subject to Shares Tax;

(5) Under Act No. 68 of December 3, 1993, gains derived by the
Trust from the sale, exchange or other disposition of Pennsylvania
Bonds may be subject to Pennsylvania personal or corporate income
taxes. Those gains which are distributed by the Trust to
Certificateholders who are individuals will be subject to
Pennsylvania Personal Income Tax and, for residents of Philadelphia,
to Philadelphia School District Investment Income Tax. For
Certificateholders which are corporations, the distributed gains will
be subject to Corporate Net Income Tax or Mutual Thrift Institutions
Tax.

(6) For Pennsylvania Bonds, gains which are not distributed by
the Trust will nevertheless be taxable to Certificateholders if
derived by the Trust from the sale, exchange or other disposition of
these Bonds issued on or after February 1, 1994. Such gains which
are not distributed by the Trust will remain nontaxable to
Certificateholders if derived by the Trust from the sale, exchange or
other disposition of Bonds issued prior to February 1, 1994.
However, for gains from the sale, exchange or other disposition of
these Bonds to be taxable under the Philadelphia School District
Investment Income Tax, the Bonds must be held for six months or less;

(7) Gains from the sale, exchange or other disposition of
Puerto Rico Bonds will be taxable to Certificateholders if
distributed or retained by the Trust. However, for gains from the
sale, exchange or other disposition of these Bonds to be taxable
under the Philadelphia School District Investment Income Tax, the
Bonds must be held for six months or less;

(8) Units are subject to Pennsylvania inheritance and estate
taxes;

(9) Any proceeds paid under insurance policies issued to the
Trustee or obtained by issuers or the underwriters of the Bonds, the
Sponsor or others which represent interest on defaulted obligations
held by the Trustee will be excludable from Pennsylvania gross income
if, and to the same extent as, such interest would have been so
excludable if paid in the normal course by the issuer of the
defaulted obligations; and

(10) The Trust is not taxable as a corporation under
Pennsylvania tax laws applicable to corporations.

In the opinion of Hunton & Williams, special counsel to the
Sponsors for Virginia tax matters, under existing Virginia law applicable
to individuals who are Virginia residents and assuming that the Virginia
Trust is a grantor trust under the grantor trust rules of Sections 671-679
of the Code:

The Virginia Trust will be taxable as a grantor trust for
Virginia income tax purposes with the result that income of the
Virginia Trust will be treated as income of the Certificateholders of
the Virginia Trust. Consequently, the Virginia Trust will not be
subject to any income or corporate franchise tax imposed by the
Commonwealth of Virginia, or its subdivisions, agencies or
instrumentalities.

Interest on the Bonds in the Virginia Trust that is exempt from
Virginia income tax when received by the Virginia Trust will retain
its tax exempt status in the hands of the Certificateholders of the
Virginia Trust.

A Certificateholder of the Virginia Trust will realize a taxable
event when the Virginia Trust disposes of a Bond (whether by sale,
exchange, redemption or payment at maturity) or when the
Certificateholder redeems or sells his Units, and taxable gain for
Federal income tax purposes may result in taxable gain for Virginia
income tax purposes. Certain Bonds, however, may have been issued
under Acts of the Virginia General Assembly which provide that all
income from such Bond, including any profit from the sale thereof,
shall be free from all taxation by the Commonwealth of Virginia. To
the extent that any such profit is exempt from Virginia income tax,
any such profit received by the Virginia Trust will retain its tax
exempt status in the hands of the Certificateholders of the Virginia
Trust.

In the case of Bonds that are industrial revenue bonds ("IRBs")
or certain types of private activity bonds, the opinions of bond counsel
to the respective issuing authorities indicate that interest on such Bonds
is exempt from regular federal income tax. However, interest on such
Bonds will not be exempt from regular federal income tax for any period
during which such Bonds are held by a "substantial user" of the facilities
financed by the proceeds of such Bonds or by a "related person" thereof
within the meaning of the Code. Therefore, interest on any such Bonds
allocable to a Certificateholder who is such a "substantial user" or
"related person" thereof will not be tax-exempt. Furthermore, in the case
of IRBs that qualify for the "small issue" exemption, the "small issue"
exemption will not be available or will be lost if, at any time during the
three-year period beginning on the later of the date the facilities are
placed in service or the date of issue, all outstanding tax-exempt IRBs,
together with a proportionate share of any present issue, of an owner or
principal user (or related person) of the facilities exceeds $40,000,000.
In the case of IRBs issued under the $10,000,000 "small issue" exemption,
interest on such IRBs will become taxable if the face amount of such IRBs
plus certain capital expenditures exceeds $10,000,000.

In addition, a Bond can lose its tax-exempt status as a result
of other subsequent but unforeseeable events such as prohibited
"arbitrage" activities by the issuer of the Bond or the failure of the
Bond to continue to satisfy the conditions required for the exemption of
interest thereon from regular federal income tax. No investigation has
been made as to the current or future owners or users of the facilities
financed by the Bonds, the amount of such persons' outstanding tax-exempt
IRBs, or the facilities themselves, and no assurance can be given that
future events will not affect the tax-exempt status of the Bonds.
Investors should consult their tax advisors for advice with respect to the
effect of these provisions on their particular tax situation.

Interest on indebtedness incurred or continued to purchase or
carry the Units is not deductible for regular federal income tax purposes.
In addition, under rules used by the Internal Revenue Service for
determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, 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. Also, in the
case of certain financial institutions that acquire Units, in general no
deduction is allowed for interest expense allocable to the Units.

From time to time proposals have been introduced before Congress
to restrict or eliminate the federal income tax exemption for interest on
debt obligations similar to the Bonds in the State Trusts, and it can be
expected that similar proposals may be introduced in the future.

In a 1988 decision (South Carolina v. Baker), the U.S. Supreme
Court held that the federal government may constitutionally require states
to register bonds they issue and subject the interest on such bonds to
federal income tax if not registered, and that there is no constitutional
prohibition against the federal government's taxing the interest earned on
state or other municipal bonds. The Supreme Court decision affirms the
authority of the federal government to regulate and control bonds such as
the Bonds in the Trust and to tax interest on such bonds in the future.
The decision does not, however, affect the current exemption from taxation
of the interest earned on the Bonds in the Trust in accordance with Sec-
tion 103 of the Code.

The opinions of bond counsel to the issuing governmental
authorities to the effect that interest on the Bonds is exempt from
regular federal income tax may be limited to law existing at the time the
Bonds were issued, and may not apply to the extent that future changes in
law, regulations or interpretations affect such Bonds. Investors are
advised to consult their own tax advisors for advice with respect to the
effect of any legislative changes.

LIQUIDITY

Sponsors' Repurchase

The Sponsors, although not obligated to do so, intend to
maintain a secondary market for the Units of each Trust and continuously
to offer to repurchase the Units of the Trusts. The Sponsors' secondary
market repurchase price will be based on the aggregate bid price of the
Bonds in each Trust portfolio, determined by the Evaluator on a daily
basis, and will be the same as the redemption price. (See "Trustee
Redemption.") Certificateholders who wish to dispose of their Units
should inquire of the Sponsors as to current market prices prior to making
a tender for redemption. The Sponsors may discontinue repurchases of
Units of a Trust if the supply of Units exceeds demand, or for other
business reasons. The date of repurchase is deemed to be the date on
which Certificates representing Units of a Trust are physically received
in proper form by Bear, Stearns & Co. Inc., on behalf of the Sponsors,
245 Park Avenue, New York, N.Y. 10167. Units received after 4:00 p.m.,
New York Time, will be deemed to have been repurchased on the next
business day. In the event a market is not maintained for the Units of a
Trust, a Certificateholder may be able to dispose of Units only by
tendering them to the Trustee for redemption.

Prospectuses relating to certain other bond trusts indicate an
intention by the respective Sponsors, subject to change, to repurchase
units of those funds on the basis of a price higher than the bid prices of
the Bonds in the Trusts. Consequently, depending upon the prices actually
paid, the secondary market repurchase price of other trusts may be
computed on a somewhat more favorable basis than the repurchase price
offered by the Sponsors for Units of these Trusts, although in all bond
trusts, the purchase price per unit depends primarily on the value of the
bonds in the trust portfolio.

Units purchased by the Sponsors in the secondary market may be
re-offered for sale by the Sponsors at a price based on the aggregate bid
price of the Bonds in a Trust plus the applicable sales charge (see
"Public Offering Price" in Part A) plus net accrued interest. Any Units
that are purchased by the Sponsors in the secondary market also may be
redeemed by the Sponsors if they determine such redemption to be in their
best interest.

The Sponsors may, under certain circumstances, as a service to
Certificateholders, elect to purchase any Units tendered to the Trustee
for redemption (see "Trustee Redemption"). For example, if in order to
meet redemptions of Units the Trustee must dispose of Bonds, and if such
disposition cannot be made by the redemption date (seven calendar days
after tender), the Sponsors may elect to purchase such Units. Such
purchase shall be made by payment to the Certificateholder not later than
the close of business on the redemption date of an amount equal to the
Redemption Price on the date of tender.

Trustee Redemption

Units may also be tendered to the Trustee for redemption at its
corporate trust office as set forth in Part A of this Prospectus, upon
proper delivery of Certificates representing such Units and payment of any
relevant tax. At the present time there are no specific taxes related to
the redemption of Units. No redemption fee will be charged by the
Sponsors or the Trustee. Units redeemed by the Trustee will be cancelled.

Certificates representing Units to be redeemed must be delivered
to the Trustee and must be properly endorsed or accompanied by proper
instruments of transfer with signature guaranteed (or by providing
satisfactory indemnity, as in the case of lost, stolen or mutilated
Certificates). Thus, redemptions of Units cannot be effected until
Certificates representing such Units have been delivered by the person
seeking redemption. (See "Certificates.") Certificateholders must sign
exactly as their names appear on the faces of their Certificates. 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 a tender for redemption,
or, if such seventh day is not a business day, on the first business day
prior thereto, the Certificateholder 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 on the date of tender. The "date of
tender" is deemed to be the date on which Units are received by the
Trustee, except that, with respect to 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.

Accrued interest paid on redemption shall be withdrawn from the
appropriate Interest Account, or, if the balance therein is insufficient,
from the appropriate Principal Account. All other amounts paid on
redemption shall be withdrawn from the appropriate Principal Account. The
Trustee is empowered to sell Bonds in order to make funds available for
redemptions. Such sales, if required, could result in a sale of Bonds by
the Trustee at a loss. To the extent Bonds in a State Trust are sold, the
size and diversity of such Trust will be reduced.

The Redemption Price per Unit of a Trust is the pro rata share
of each Unit in such State Trust determined by the Trustee on the basis of
(i) the cash on hand in such Trust or monies in the process of being
collected, (ii) the value of the Bonds in such State Trust based on the
bid prices of such Bonds and (iii) interest accrued thereon, less
(a) amounts representing taxes or other governmental charges payable out
of such State Trust, (b) the accrued expenses of such State Trust and
(c) cash allocated for distribution to Certificateholders of record of
such State Trust as of the business day prior to the evaluation being
made. The Evaluator may determine the value of the Bonds in such Trust
for purposes of redemption (1) on the basis of current bid prices of the
Bonds obtained from dealers or brokers who customarily deal in bonds
comparable to those held by such Trust, (2) on the basis of bid prices for
bonds comparable to any Bonds for which bid prices are not available,
(3) by determining the value of the Bonds by appraisal, or (4) by any
combination of the above.

The Trustee is irrevocably authorized in its discretion, if the
Sponsors do not elect to purchase a Unit tendered for redemption or if the
Sponsors tender a Unit for redemption, in lieu of redeeming such Unit, to
sell such Unit in the over-the-counter market for the account of the
tendering Certificateholder at prices which will return to the Certifi-
cateholder an amount in cash, net after deducting brokerage commissions,
transfer taxes and other charges, equal to or in excess of the Redemption
Price for such Unit. The Trustee will pay the net proceeds of any such
sale to the Certificateholder on the day he would otherwise be entitled to
receive payment of the Redemption Price.

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 customary 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 Bonds is not reasonably practicable, or for such
other periods as the Securities and Exchange Commission may by order
permit. The Trustee and the Sponsors are not liable to any person or in
any way for any loss or damage which may result from any such suspension
or postponement.

A Certificateholder who wishes to dispose of his Units should
inquire of his bank or broker in order to determine if there is a current
secondary market price in excess of the Redemption Price.

TOTAL REINVESTMENT PLAN

Under the Total Reinvestment Plan (the "Plan"), semi-annual and
annual Certificateholders may elect to have all interest and principal
distributions, if any, with respect to their Units reinvested either in
units of various series of "Municipal Securities Trust"* which will have
been created shortly before each semi-annual or annual Payment Date (a
"Primary Series") or, if units of a Primary Series are not available, in
units of a previously formed series of the Trust which have been
repurchased by the Sponsors in the secondary market, including the Units
being offered hereby (a "Secondary Series") (Primary Series and Secondary
Series are hereafter collectively referred to as "Available Series").
June 15 and December 15 of each year in the case of semi-annual Certifi-
cateholders and December 15 of each year in the case of annual Certifi-
cateholders are "Plan Reinvestment Dates."

* Certificateholders of a particular State Trust of the Multi-State
Trust who participate in the Plan will have reinvestments made in
Units from the same State Trust of a similar Multi-State Trust if
such Units are available. If no such Units are available for
reinvestment, distributions to Certificateholders will be reinvested
in Units of regular series of Municipal Securities Trust, the income
earned on which may not be exempt from state and local income taxes.

<PAGE>

Under the Plan (subject to compliance with applicable blue sky
laws), fractional units ("Plan Units") will be purchased from the Sponsors
at a price equal to the aggregate offering price per Unit of the bonds in
the Available Series portfolio during the initial offering of the
Available Series or at the aggregate bid price per Unit of the Available
Series if its initial offering has been completed, plus a sales charge
equal to 3.627% of the net amount invested in such bonds or 3-1/2% of the
Reinvestment Price per Plan Unit, plus accrued interest, divided by one
hundred (the "Reinvestment Price per Plan Unit"). All Plan Units will be
sold at this reduced sales charge of 3-1/2% in comparison to the regular
sales charge levied on primary and secondary market sales of Units in any
series of "Municipal Securities Trust." Participants in the Plan will
have the opportunity to designate, in the Authorization Form for the Plan,
the name of a broker to whom the Sponsors will allocate a sales commission
of 1-1/2% of the Reinvestment Price per Plan Unit, payable out of the
3-1/2% sales charge. If no such designation is made, the Sponsors will
retain the sales commission.

Under the Plan, the entire amount of a participant's income and
principal distributions will be reinvested. For example, a Certificate-
holder who is entitled to receive $130.50 interest income from the Trust
would acquire 13.05 Plan Units assuming that the Reinvestment Price per
Plan Unit, plus accrued interest, approximated $10 (Ten Dollars).

A semi-annual or annual Certificateholder may join the Plan at
the time he invests in Units of the Trust or any time thereafter by
delivering to the Trustee an Authorization Form which is available from
brokers or the Sponsors. In order that distributions may be reinvested on
a particular Plan Reinvestment Date, the Authorization Form must be
received by the Trustee not later than the 15th day of the month preceding
such date. Authorization Forms not received in time for a particular Plan
Reinvestment Date will be valid only for the second succeeding Plan
Reinvestment Date. Similarly, a participant may withdraw from the program
at any time by notifying the Trustee (see below). However, if written
confirmation of withdrawal is not given to the Trustee prior to a
particular distribution, the participant will be deemed to have elected to
participate in the Plan with respect to that particular distribution and
his withdrawal would become effective for the next succeeding
distribution.

Once delivered to the Trustee, an Authorization Form will
constitute a valid election to participate in the Plan with respect to
Units purchased in the Trust (and with respect to Plan Units purchased
with the distributions from the Units purchased in the Trust) for each
subsequent distribution as long as the Certificateholder continues to
participate in the Plan. However, if an Available Series should
materially differ from the Trust in the opinion of the Sponsors, the
authorization will be voided and participants will be provided with both a
notice of the material change and a new Authorization Form which would
have to be returned to the Trustee before the Certificateholder would
again be able to participate in the Plan. The Sponsors anticipate that a
material difference which would result in a voided authorization would
include such facts as the inclusion of bonds in the Available Series
portfolio, the interest income on which was not exempt from all Federal
income tax, or the inclusion of bonds which were not rated "A" or better
by either Standard & Poor's Corporation or Moody's Investors Service, Inc.
on the date such bonds were initially deposited in the Available Series
portfolio.

The Sponsors have the option at any time to use units of a
Secondary Series to fulfill the requirements of the Plan in the event
units of a Primary Series are not available either because a Primary
Series is not then in existence or because the registration statement
relating thereto is not declared effective in sufficient time to
distribute final prospectuses to Plan participants (see below). It should
be noted that there is no assurance that the quality and diversification
of the Bonds in any Available Series or the estimated current return
thereon will be similar to that of this Trust.

It is the Sponsors' intention that Plan Units will be offered on
or about each semi-annual and annual Record Date for determining who is
eligible to receive distributions on the related Payment Date. Such
Record Dates are June 1 and December 1 of each year for semi-annual Cer-
tificateholders, and December 1 of each year for annual Certificate-
holders. On each Record Date the Sponsors will send a current Prospectus
relating to the Available Series being offered for the next Plan
Reinvestment Date along with a letter which reminds each participant that
Plan Units are being purchased for him as part of the Plan unless he
notifies the Trustee in writing by that Plan Reinvestment Date that he no
longer wishes to participate in the Plan. In the event a Primary Series
has not been declared effective in sufficient time to distribute a final
Prospectus relating thereto and there is no Secondary Series as to which a
registration statement is currently effective, it is the Sponsors'
intention to suspend the Plan and distribute to each participant his
regular semi-annual or annual distribution. If the Plan is so suspended,
it will resume in effect with the next Plan Reinvestment Date, assuming
units of an Available Series are then being offered.

To aid a participant who might desire to withdraw either from
the Plan or from a particular distribution, the Trustee has established a
toll free number (see below) for participants to use for notification of
withdrawal, which must be confirmed in writing prior to the Plan
Reinvestment Date. Should the Trustee be so notified, it will make the
appropriate cash disbursement. Unless the withdrawing participant
specifically indicates in his written confirmation that (a) he wishes to
withdraw from the Plan for that particular distribution only, or (b) he
wishes to withdraw from the Plan for less than all units of each series of
"Municipal Securities Trust" which he might then own (and specifically
identifies which series are to continue in the Plan), he will be deemed to
have withdrawn completely from the Plan in all respects. Once a
participant withdraws completely, he will only be allowed to again
participate in the Plan by submitting a new Authorization Form. A sale or
redemption of a portion of a participant's Plan Units will not constitute
a withdrawal from the Plan with respect to the remaining Plan Units owned
by such participant.

Unless a Certificateholder notifies the Trustee in writing to
the contrary, each semi-annual and annual Certificateholder who has
acquired Plan Units will be deemed to have elected the semi-annual and
annual plan of distribution, respectively, and to participate in the Plan
with respect to distributions made in connection with such Plan Units.
(Should the Available Series from which Plan Units are purchased for the
account of an annual Certificateholder fail to have an annual distribution
plan, such Certificateholder will be deemed to have elected the semi-
annual plan of distribution, and to participate in the Plan with respect
to distributions made, in connection with such Plan Units.) A participant
who subsequently desires to have distributions made with respect to Plan
Units delivered to him in cash may withdraw from the Plan with respect to
such Plan Units and remain in the Plan with respect to units acquired
other than through the Plan. Assuming a participant has his distributions
made with respect to Plan Units reinvested, all such distributions will be
accumulated with distributions generated from the Units of the Trust used
to purchase such additional Plan Units. However, distributions related to
units in other series of "Municipal Securities Trust" will not be
accumulated with the foregoing distributions for Plan purchases. Thus, if
a person owns units in more than one series of "Municipal Securities
Trust" (which are not the result of purchases under the Plan),
distributions with respect thereto will not be aggregated for purchases
under the Plan.

Although not obligated to do so, the Sponsors intend to maintain
a market for the Plan Units and continuously to offer to purchase Plan
Units at prices based upon the aggregate offering price of the Bonds in
the Available Series portfolio during the initial offering of the
Available Series, or at the aggregate bid price of the Bonds of the
Available Series of its initial offering has been completed. The Sponsors
may discontinue such purchases at any time. The aggregate bid price of
the underlying bonds may be expected to be less than the aggregate
offering price. In the event that a market is not maintained for Plan
Units, a participant desiring to dispose of his Plan Units may be able to
do so only by tendering such Plan Units to the Trustee for redemption at
the Redemption Price of the full units in the Available Series
corresponding to such Plan Units, which is based upon the aggregate bid
price of the underlying bonds as described in the "Municipal Securities
Trust" Prospectus for the Available Series in question. If a participant
wishes to dispose of his Plan Units, he should inquire of the Sponsors as
to current market prices prior to making a tender for redemption to the
Trustee.

Any participant may tender his Plan Units for redemption to the
Available Series Trust. Participants may redeem Plan Units by making a
written request to the Trustee at the address set forth in Part A, on the
Redemption Form supplied by the Trustee. The redemption price per Plan
Unit will be determined as set forth in the "Municipal Securities Trust"
Prospectus of the Available Series from which such Plan Unit was purchased
following receipt of the request and adjusted to reflect the fact that it
relates to a Plan Unit. There is no charge for the redemption of Plan
Units.

The Trust Agreement requires that the Trustee notify the
Sponsors of any tender of Plan Units for redemption. So long as the
Sponsors are maintaining a bid in the secondary market, the Sponsors will
purchase any Plan Units tendered to the Trustee for redemption by making
payment therefor to the Certificateholder in an amount not less than the
redemption price for such Plan Units on the date of tender not later than
the day on which such Plan Units otherwise would have been redeemed by the
Trustee.

Participants in the Plan will not receive individual
certificates for their Plan Units unless the amount of Plan Units
accumulated represents the principal amount of bonds per Unit for the
Available Series and, in such case, a written request for certificates is
made to the Trustee. All Plan Units will be accounted for by the Trustee
on a book entry system. Each time Plan Units are purchased under the
Plan, a participant will receive a confirmation stating his cost, number
of Units purchased and estimated current return. Questions regarding a
participant's statements should be directed to the Trustee by calling the
Trustee at the number set forth under "Summary of Essential Information"
in Part A of this Prospectus.

All expenses relating to the operation of the Plan are borne by
the Sponsors. Both the Sponsors and the Trustee reserve the right to
suspend, modify or terminate the Plan at any time for any reason,
including the right to suspend the Plan if the Sponsors are unable or
unwilling to establish a Primary Series or is unable to provide Secondary
Series Units. All participants will receive notice of any such
suspension, modification or termination.

TRUST ADMINISTRATION

Portfolio Supervision

The Sponsors may direct the Trustee to dispose of Bonds in a
Trust upon (i) default in payment of principal or interest on such Bonds,
(ii) institution of certain legal proceedings with respect to the issuers
of such Bonds, (iii) default under other documents adversely affecting
debt service on such Bonds, (iv) default in payment of principal or
interest on other obligations of the same issuer or guarantor, (v) with
respect to revenue Bonds, decline in revenues and income of any facility
or project below the estimated levels calculated by proper officials
charged with the construction or operation of such facility or project, or
(vi) decline in price or the occurrence of other market or credit factors
that in the opinion of the Sponsors would make the retention of such Bonds
in such Trust detrimental to the interests of the Certificateholders. If
a default in the payment of principal or interest on any of the Bonds
occurs and if the Sponsors fail to instruct the Trustee to sell or hold
such Bonds, the Trust Agreement provides that the Trustee may sell such
Bonds.

The Sponsors are authorized by the Trust Agreement to direct the
Trustee to accept or reject certain plans for the refunding or refinancing
of any of the Bonds. Any bonds 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 the Bonds originally deposited. Within
five days after such deposit in a Trust, notice of such exchange and
deposit shall be given by the Trustee to each Certificateholder of such
Trust registered on the books of the Trustee, including an identification
of the Bonds eliminated and the Bonds substituted therefor. Except as
previously stated in the discussion regarding Failed Bonds, the
acquisition by a State Trust of any securities other than the Bonds
initially deposited is prohibited.

Trust Agreement, Amendment and Termination

The Trust Agreement may be amended by the Trustee, the Sponsors
and the Evaluator without the consent of any of the Certificateholders:
(1) to cure any ambiguity or to correct or supplement any provision which
may be defective or inconsistent; (2) to change any provision thereof as
may be required by the Securities and Exchange Commission or any successor
governmental agency; or (3) to make such other provisions in regard to
matters arising thereunder as shall not adversely affect the interests of
the Certificateholders.

The Trust Agreement may also be amended in any respect, or
performance of any of the provisions thereof may be waived, with the
consent of the holders of Certificates evidencing 66-2/3% of the Units
then outstanding of each Trust affected by such amendment for the purpose
of modifying the rights of Certificateholders; provided that no such
amendment or waiver shall reduce any Certificateholder's interest in a
Trust without his consent or reduce the percentage of Units required to
consent to any such amendment or waiver without the consent of the holders
of all Certificates. The Trust Agreement may not be amended, without the
consent of the holders of all Certificates in a Trust then outstanding, to
increase the number of Units issuable by such Trust or to permit the
acquisition of any bonds in addition to or in substitution for those
initially deposited in such State Trust, except in accordance with the
provisions of the Trust Agreement. The Trustee shall promptly notify Cer-
tificateholders, in writing, of the substance of any such amendment.

The Trust Agreement provides that each Trust shall terminate
upon the maturity, redemption or other disposition, as the case may be, of
the last of the Bonds held in such Trust, but in no event is it to
continue beyond the end of the calendar year preceding the fiftieth
anniversary of the execution of the Trust Agreement. If the value of a
Trust shall be less than the minimum amount set forth under "Summary of
Essential Information in Part A" for such Trust, the Trustee may, in its
discretion, and shall when so directed by the Sponsors, terminate such
Trust. Each Trust may also be terminated at any time with the consent of
the holders of Certificates representing 100% of the Units of such Trust
then outstanding. In the event of termination of a Trust, written notice
thereof will be sent by the Trustee to all Certificateholders of such
Trust. Within a reasonable period after termination, the Trustee must
sell any Bonds remaining in the terminated Trust, and, after paying all
expenses and charges incurred by such Trust, distribute to each Certifi-
cateholder thereof, upon surrender for cancellation of his Certificate for
Units, his pro rata share of the Interest and Principal Accounts of such
Trust.

The Sponsors

The Sponsors, Bear, Stearns & Co. Inc. and Gruntal & Co.,
Incorporated have entered into an Agreement Among Co-Sponsors pursuant to
which both parties have agreed to act as Co-Sponsors for the Trust. Bear,
Stearns & Co. Inc. has been appointed by Gruntal & Co., Incorporated as
agent for purposes of taking any action required or permitted to be taken
by the Sponsors under the Trust Agreement. If the Sponsors are unable to
agree with respect to action to be taken jointly by them under the Trust
Agreement and they cannot agree as to which Sponsors shall act as sole
Sponsors, then Bear, Stearns & Co. Inc. shall act as sole Sponsors. If
one of the Sponsors fails to perform its duties under the Trust Agreement
or becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, that Sponsors may be discharged under
the Trust Agreement and a new Sponsors may be appointed or the remaining
Sponsors may continue to act as Sponsors. Bear, Stearns & Co. Inc., a
Delaware corporation, is engaged in the underwriting, investment banking
and brokerage business and is a member of the National Association of
Securities Dealers, Inc. and all principal securities and commodities
exchanges, including the New York Stock Exchange, the American Stock
Exchange, the Midwest Stock Exchange and the Pacific Stock Exchange. Bear
Stearns maintains its principal business offices at 245 Park Avenue, New
York, New York 10167 and, since its reorganization from a partnership to a
corporation in October, 1985 has been a wholly-owned subsidiary of The
Bear Stearns Companies Inc. Bear Stearns, through its predecessor
entities, has been engaged in the investment banking and brokerage
business since 1923. Bear Stearns is the sponsors for numerous series of
unit investment trusts, including: A Corporate Trust, Series 1 (and
Subsequent Series); New York Municipal Trust, Series 1 (and Subsequent
Series); Discount and Zero Coupon Fund, 1st Series (and Subsequent
Series); Municipal Securities Trust, Series 1 (and Subsequent Series); 1st
Discount Series (and Subsequent Series); High Income Series 1 (and
Subsequent Series); Multi-State Series 1 (and Subsequent Series); Short-
Intermediate Term Series 1 (and Subsequent Series); Insured Municipal
Securities Trust, Series 1-4 (Multiplier Portfolio); Series 1 (and
Subsequent Series); 5th Discount Series (and Subsequent Series); Navigator
Series (and Subsequent Series); Mortgage Securities Trust, CMO Series 1
(and Subsequent Series) and Equity Securities Trust, Series 1, Signature
Series, Gabelli Communications Income Trust (and Subsequent Series). The
information included herein is only for the purpose of informing investors
as to the financial responsibility of the Sponsors and their ability to
carry out their contractual obligations.

Gruntal & Co., Incorporated, a Delaware corporation, operates a
regional securities broker/dealer from its main office in New York City
and branch offices in nine states and the District of Columbia. The firm
is very active in the marketing of investment companies and has signed
dealer agreements with every mutual fund group, as well as being the
managing distributor for The Home Group Money Market and Mutual Funds.
Further, through its Syndicate Department, Gruntal & Co. Incorporated has
underwritten a large number of Closed-End Funds and has been Co-Manager on
the following offerings: Cigna High Income Shares; Dreyfus New York
Municipal Income, Inc.; Franklin Principal Maturity Trust and Van Kampen
Merritt Limited Term High Income Trust. The Sponsors are liable for the
performance of its obligations arising from its responsibilities under the
Trust Agreement, but will be under no liability to Certificateholders for
taking any action, or refraining from taking any action, in good faith
pursuant to the Trust Agreement, or for errors in judgment except in cases
of its own willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.

The Sponsors may resign at any time by delivering to the Trustee
an instrument of resignation executed by the Sponsors.

If at any time the Sponsors shall resign or fail to perform any
of its duties under the Trust Agreement or becomes incapable of acting or
becomes bankrupt or its affairs are taken over by public authorities, then
the Trustee may either (a) appoint a successor Sponsors; (b) terminate the
Trust Agreement and liquidate the Trust; or (c) continue to act as Trustee
without terminating the Trust Agreement. Any successor Sponsors appointed
by the Trustee shall be satisfactory to the Trustee and, at the time of
appointment, shall have a net worth of at least $1,000,000.

The Trustee

The Trustee is United States Trust Company of New York, with its
principal place of business at 45 Wall Street, New York, New York 10005
and a corporate trust office at 770 Broadway, New York, New York 10003.
United States Trust Company of New York has, since its establishment in
1853, engaged primarily in the management of trust and agency accounts for
individuals and corporations. The Trustee is a member of the New York
Clearing House Association and 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.

The Trustee shall not be liable or responsible in any way for
taking any action, or for refraining from taking any action, in good faith
pursuant to the Trust Agreement, or for errors in judgment; or for any
disposition of any moneys, Bonds or Certificates in accordance with the
Trust Agreement, except in cases of its own willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations and
duties; provided, however, that the Trustee shall not in any event be
liable or responsible for any evaluation made by the Evaluator. In
addition, the Trustee shall not be liable for any taxes or other
governmental charges imposed upon or in respect of the Bonds or the Trusts
which it may be required to pay under current or future law of the United
States or any other taxing authority having jurisdiction. The Trustee
shall not be liable for depreciation or loss incurred by reason of the
sale by the Trustee of any of the Bonds pursuant to the Trust Agreement.

For further information relating to the responsibilities of the
Trustee under the Trust Agreement, reference is made to the material set
forth under "Rights of Certificateholders."

The Trustee may resign by executing an instrument in writing and
filing the same with the Sponsors, and mailing a copy of a notice of
resignation to all Certificateholders. In such an event the Sponsors are
obligated to appoint a successor Trustee as soon as possible. In
addition, if the Trustee becomes incapable of acting or becomes bankrupt
or its affairs are taken over by public authorities, the Sponsors may
remove the Trustee and appoint a successor as provided in the Trust
Agreement. Notice of such removal and appointment shall be mailed to each
Certificateholder by the Sponsors. If upon resignation of the Trustee no
successor has been appointed and has accepted the appointment within
thirty days after notification, the retiring Trustee may apply to a court
of competent jurisdiction for the appointment of a successor. The
resignation or removal of the Trustee becomes effective only when the
successor Trustee accepts its appointment as such or when a court of
competent jurisdiction appoints a successor Trustee. Upon execution of a
written acceptance of such appointment by such successor Trustee, all the
rights, powers, duties and obligations of the original Trustee shall vest
in the successor.

Any corporation into which the Trustee may be merged or with
which it may be consolidated, or any corporation resulting from any merger
or consolidation to which the Trustee shall be a party, shall be the
successor Trustee. The Trustee must always be a banking corporation
organized under the laws of the United States or any state and have at all
times an aggregate capital, surplus and undivided profits of not less than
$2,500,000.

The Evaluator

The Evaluator is Kenny S&P Evaluation Services, a division of
Kenny Information Systems, Inc. with main offices located at 65 Broadway,
New York, New York 10006. The Evaluator is a wholly-owned subsidiary of
McGraw-Hill, Inc. The Evaluator is a registered investment advisor and
also provides financial information services.

The Trustee, the Sponsors and Certificateholders 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 Sponsors, or Certificateholders
for errors in judgment, except in cases of its own willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations and
duties.

The Evaluator may resign or may be removed by the Sponsors and
Trustee, and the Sponsors 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 the successor
Evaluator. If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the retiring
Evaluator may apply to a court of competent jurisdiction for the
appointment of a successor.

TRUST EXPENSES AND CHARGES

At no cost to the Trust, the Sponsors have borne all the
expenses of creating and establishing the Trust, including the cost of
initial preparation and execution of the Trust Agreement, registration of
the State Trusts and the Units under the Investment Company Act of 1940
and the Securities Act of 1933, preparation and printing of the
Certificates, the fees of the Evaluator during the initial public
offering, legal and auditing expenses, advertising and selling expenses,
initial fees and expenses of the Trustee and other out-of-pocket expenses.

The Sponsors will not charge the Trust a fee for its services as
such. See "Sponsors' Profits."

The Trustee will receive for its ordinary recurring services to
each Trust an annual fee in the amount set forth under "Summary of
Essential Information" in Part A. For a discussion of the services
performed by the Trustee pursuant to its obligations under the Trust
Agreement, see "Trust Administration" and "Rights of Certificateholders."

The Evaluator will receive for each daily evaluation of the
Bonds in the Trust a fee in the amount set forth under "Summary of
Essential Information" in Part A, which fee shall be allocated pro rata
among each Trust.

The Trustee's and Evaluator's fees applicable to a Trust are
payable monthly as of the Record Date from such Trust's Interest Account
to the extent funds are available and then from such Trust's Principal
Account. Both fees may be increased without approval of the Certificate-
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."

The following additional charges are or may be incurred by any
or all of the Trusts: all expenses (including counsel and auditing fees)
of the Trustee incurred in connection with its activities under the Trust
Agreement, including the expenses and costs of any action undertaken by
the Trustee to protect a Trust and the rights and interests of the Cer-
tificateholders; fees of the Trustee for any extraordinary services
performed under the Trust Agreement; indemnification of the Trustee for
any loss or liability accruing to it without gross negligence, bad faith
or willful misconduct on its part, arising out of or in connection with
its acceptance or administration of a Trust; indemnification of the
Sponsors for any loss, liabilities and expenses incurred in acting as
Sponsors of a Trust without gross negligence, bad faith or willful
misconduct on its part; and all taxes and other governmental charges
imposed upon the Bonds or any part of a Trust (no such taxes or charges
are being levied, made or, to the knowledge of the Sponsors,
contemplated). The above expenses, including the Trustee's fees, when
paid by or owing to the Trustee are secured by a first lien on the Trust
to which such expenses are allocable. In addition, the Trustee is
empowered to sell Bonds of a Trust in order to make funds available to pay
all expenses of such Trust.

EXCHANGE PRIVILEGE AND CONVERSION OFFER

Exchange Privilege

Certificateholders may elect to exchange any or all of their
Units of these Trusts for Units of one or more of any available series of
Insured Municipal Securities Trust, Municipal Securities Trust, New York
Municipal Trust, Mortgage Securities Trust, A Corporate Trust or Equity
Securities Trust (upon receipt by Equity Securities Trust of an
appropriate exemptive order from the Securities and Exchange Commission)
(the "Exchange Trusts") at a reduced sales charge as set forth below.
Under the Exchange Privilege, the Sponsors' repurchase price after the
initial offering period has been completed, will be based on the aggregate
bid price of the Bonds in the particular Trust portfolio. Units in an
Exchange Trust then will be sold to the Certificateholder at a price based
on the aggregate offer price of the Bond in the Exchange Trust portfolio
(or for Units of Equity Securities Trust, based on the market value of the
underlying securities in the Equity Trust portfolio) during the initial
public offering period of the Exchange Trust; or based on the aggregate
bid price of the Bonds in the Exchange Trust portfolio if its initial
public offering has been completed, plus accrued interest (or for Units of
Equity Securities Trust, based on the market value of the underlying
securities in the Equity Trust portfolio) and a reduced sales charge as
set forth below.

Except for unitholders who wish to exercise the Exchange
Privilege within the first five months of their purchase of Units of
Trust, the sales charge applicable to the purchase of units of an Exchange
Trust shall be $15 per unit (or per 1,000 Units for the Mortgage
Securities Trust or per 100 Units for the Equity Securities Trust)
(approximately 1.5% of the price of each Exchange Trust unit (or 1,000
Units for the Mortgage Securities Trust or per 100 Units for the Equity
Securities Trust). For unitholders who wish to exercise the Exchange
Privilege within the first five months of their purchase of Units of
Trust, the sales charge applicable to the purchase of units of an Exchange
Trust shall be the greater of (i) $15 per unit (or per 1,000 Units for the
Mortgage Securities Trust or per 100 Units for the Equity Securities
Trust), or (ii) an amount which when coupled with the sales charge paid by
the unitholder upon his original purchase of Units of the Trust at least
equals the sales charge applicable in the direct purchase of units of an
Exchange Trust. The Exchange Privilege is subject to the following
conditions:

(1) The Sponsors must be maintaining a secondary market in both
the Units of the Trust held by the Certificateholder and the Units of
the available Exchange Trust. While the Sponsors have indicated its
intention to maintain a market in the Units of all Trusts sponsored
by it, the Sponsors are under no obligation to continue to maintain a
secondary market and therefore there is no assurance that the
Exchange Privilege will be available to a Certificateholder at any
specific time in the future. At the time of the Certificateholder's
election to participate in the Exchange Privilege, there also must be
Units of the Exchange Trust available for sale, either under the
initial primary distribution or in the Sponsors' secondary market.

(2) Exchanges will be effected in whole units only. Any excess
proceeds from the Units surrendered for exchange will be remitted and
the selling Certificateholder will not be permitted to advance any
new funds in order to complete an exchange. Units of the Mortgage
Securities Trust may only be acquired in blocks of 1,000 Units.
Units of the Equity Securities Trust may only be acquired in blocks
of 100 units.

(3) The Sponsors reserve the right to suspend, modify or
terminate the Exchange Privilege. The Sponsors will provide
unitholders of the Trust with 60 days' prior written notice of any
termination or material amendment to the Exchange Privilege, provided
that, no notice need be given if (i) the only material effect of an
amendment is to reduce or eliminate the sales charge payable at the
time of the exchange, to add one or more series of the Trust eligible
for the Exchange Privilege or to delete a series which has been
terminated from eligibility for the Exchange Privilege, (ii) there is
a suspension of the redemption of units of an Exchange Trust under
Section 22(e) of the Investment Company Act of 1940, or (iii) an
Exchange Trust temporarily delays or ceases the sale of its units
because it is unable to invest amounts effectively in accordance with
its investment objectives, policies and restrictions. During the 60
day notice period prior to the termination or material amendment of
the Exchange Privilege described above, the Sponsors will continue to
maintain a secondary market in the units of all Exchange Trusts that
could be acquired by the affected unitholders. Unitholders may,
during this 60 day period, exercise the Exchange Privilege in
accordance with its terms then in effect. In the event the Exchange
Privilege is not available to a Certificateholder at the time he
wishes to exercise it, the Certificateholder will immediately be
notified and no action will be taken with respect to his Units
without further instructions from the Certificateholder.

To exercise the Exchange Privilege, a Certificateholder should
notify the Sponsors of his desire to exercise his Exchange Privilege. If
Units of a designated, outstanding series of an Exchange Trust are at the
time available for sale and such Units may lawfully be sold in the state
in which the Certificateholder is a resident, the Certificateholder will
be provided with a current prospectus or prospectuses relating to each
Exchange Trust in which he indicates an interest. He may then select the
Trust or Trusts into which he desires to invest the proceeds from his sale
of Units. The exchange transaction will operate in a manner essentially
identical to a secondary market transaction except that units may be
purchased at a reduced sales charge.

Example: Assume that after the initial public offering has been
completed, a Certificateholder has five units of a Trust with a current
value of $700 per unit which he has held for more than 5 months and the
Certificateholder wishes to exchange the proceeds for units of a secondary
market Exchange Trust with a current price of $725 per unit. The proceeds
from the Certificateholder's original units will aggregate $3,500. Since
only whole units of an Exchange Trust may be purchased under the Exchange
Privilege, the Certificateholder would be able to acquire four units (or
4,000 Units of the Mortgage Securities Trust or per 400 Units of the
Equity Securities Trust) for a total cost of $2,960 ($2,900 for unit and
$60 for the sales charge). The remaining $540 would be remitted to the
Certificateholder in cash. If the Certificateholder acquired the same
number of units at the same time in a regular secondary market
transaction, the price would have been $3,068.80 ($2,900 for units and
$168.80 for the sales charge, assuming a 5-1/2% sales charge times the
public offering price).

The Conversion Offer

Unit owners of any registered unit investment trust for which
there is no active secondary market in the units of such trust (a
"Redemption Trust") may elect to redeem such units and apply the proceeds
of the redemption to the purchase of available Units of one or more series
of A Corporate Trust, Municipal Securities Trust, Insured Municipal
Securities Trust, Mortgage Securities Trust, New York Municipal Trust or
Equity Securities Trust (upon receipt by Equity Securities Trust of an
appropriate exemptive order from the Securities and Exchange Commission)
sponsored by Bear, Stearns & Co. Inc. or the Sponsors (the "Conversion
Trusts") at the Public Offering Price for units of the Conversion Trust
based on a reduced sales charge as set forth below. Under the Conversion
Offer, units of the Redemption Trust must be tendered to the trustee of
such trust for redemption at the redemption price, which is based upon the
aggregate bid side evaluation of the underlying bonds in such trust and is
generally about 1-1.2% to 2% lower than the offering price for such bonds
(or for Units of Equity Securities Trust, based on the market value of the
underlying securities in the Equity Trust portfolio). The purchase price
of the units will be based on the aggregate offer price of the underlying
bonds in the Conversion Trust portfolio (or for Units of Equity Securities
Trust, based on the market value of the underlying securities in the
Equity Trust portfolio) during its initial offering period; or, at a price
based on the aggregate bid price of the underlying bonds if the initial
public offering of the Conversion Trust has been completed, plus accrued
interest (or for Units of Equity Securities Trust, based on the market
value of the underlying securities in the Equity Trust portfolio) and a
sales charge as set forth below.

Except for unitholders who wish to exercise the Conversion Offer
within the first five months of their purchase of units of a Redemption
Trust, the sales charge applicable to the purchase of Units of the
Conversion Trust shall be $15 per Unit (or per 1,000 Units for the
Mortgage Securities Trust or per 100 units for the Equity Securities
Trust). For unitholders who wish to exercise the Conversion Offer within
the first five months of their purchase of units of a Redemption Trust,
the sales charge applicable to the purchase of Units of a Conversion Trust
shall be the greater of (i) $15 per Unit (or per 1,000 Units for the
Mortgage Securities Trust or per 100 units for the Equity Securities
Trust) or (ii) an amount which when coupled with the sales charge paid by
the unitholder upon his original purchase of units of the Redemption Trust
at least equals the sales charge applicable in the direct purchase of
Units of a Conversion Trust. The Conversion Offer is subject to the
following limitations:

(1) The Conversion Offer is limited only to unit owners of any
Redemption Trust, defined as a unit investment trust for which there
is no active secondary market at the time the Certificateholder
elects to participate in the Conversion Offer. At the time of the
unit owner's election to participate in the Conversion Offer, there
also must be available units of a Conversion Trust, either under a
primary distribution or in the Sponsors' secondary market.

(2) Exchanges under the Conversion Offer will be effected in
whole units only. Unit owners will not be permitted to advance any
new funds in order to complete an exchange under the Conversion
Offer. Any excess proceeds from units being redeemed will be
returned to the unit owner. Units of the Mortgage Securities Trust
may only be acquired in blocks of 1,000 units. Units of the Equity
Securities Trust may only be acquired in blocks of 100 units.

(3) The Sponsors reserve the right to modify, suspend or
terminate the Conversion Offer at any time without notice to unit
owners of Redemption Trusts. In the event the Conversion Offer is
not available to a unit owner at the time he wishes to exercise it,
the unit owner will be notified immediately and no action will be
taken with respect to his units without further instruction from the
unit owner. The Sponsors also reserve the right to raise the sales
charge based on actual increases in the Sponsors' costs and expenses
in connection with administering the program, up to a maximum sales
charge of $20 per unit (or per 1,000 units for the Mortgage
Securities Trust or per 100 units for the Equity Securities Trust).

To exercise the Conversion Offer, a unit owner of a Redemption
Trust should notify his retail broker of his desire to redeem his
Redemption Trust Units and use the proceeds from the redemption to
purchase Units of one or more of the Conversion Trusts. If Units of a
designated, outstanding series of a Conversion Trust are at that time
available for sale and if such Units may lawfully be sold in the state in
which the unit owner is a resident, the unit owner will be provided with a
current prospectus or prospectuses relating to each Conversion Trust in
which he indicates an interest. He then may select the Trust or Trusts
into which he decides to invest the proceeds from the sale of his Units.
The transaction will be handled entirely through the unit owner's retail
broker. The retail broker must tender the units to the trustee of the
Redemption Trust for redemption and then apply the proceeds to the
redemption toward the purchase of units of a Conversion Trust at a price
based on the aggregate offer or bid side evaluation per Unit of the
Conversion Trust, depending on which price is applicable, plus accrued
interest and the applicable sales charge. The certificates must be
surrendered to the broker at the time the redemption order is placed and
the broker must specify to the Sponsors that the purchase of Conversion
Trust Units is being made pursuant to the Conversion Offer. The unit
owner's broker will be entitled to retain $5 of the applicable sales
charge.

Example: Assume a unit owner has five units of a Redemption
Trust which has held for more than 5 months with a current redemption
price of $675 per unit based on the aggregate bid price of the underlying
bonds and the unit owner wishes to participate in the Conversion Offer and
exchange the proceeds for units of a secondary market Conversion Trust
with a current price of $750 per Unit. The proceeds from the unit owner's
redemption of units will aggregate $3,375. Since only whole units of a
Redemption Trust may be purchased under the Conversion Offer, the unit
owner will be able to acquire four units of the Conversion Trust (or 4,000
units of the Mortgage Securities Trust or per 400 units of the Equity
Securities Trust) for a total cost of $2,860 ($2,800 for units and $60 for
the sales charge). The remaining $515 would be remitted to the unit owner
in cash. If the unit owner acquired the same number of Conversion Trust
units at the same time in a regular secondary market transaction, the
price would have been $2,962.96 ($2,800 for units and $162.96 sales
charge, assuming a 5 1/2% sales charge times the public offering price).

Description of the Exchange Trusts and the Conversion Trusts

A Corporate Trust may be an appropriate investment vehicle for
an investor who is more interested in a higher current return on his
investment (although taxable) than a tax-exempt return (resulting from the
fact that the current return from taxable fixed income securities is
normally higher than that available from tax-exempt fixed income
securities). Municipal Securities Trust and New York Municipal Trust may
be appropriate investment vehicles for an investor who is more interested
in tax-exempt income. The interest income from New York Municipal Trust
is, in general, also exempt from New York State and local New York income
taxes, while the interest income from Municipal Securities Trust is
subject to applicable New York State and local New York taxes, except for
that portion of the income which is attributable to New York and Puerto
Rico obligations in the Trust portfolio, if any. The interest income from
each State Trust of the Municipal Securities Trust, Multi-State Series is,
in general, exempt from state and local taxes when held by residents of
the state where the issuers of bonds in such State Trusts are located.
The Insured Municipal Securities Trust combines the advantages of
providing interest income free from regular federal income tax under
existing law with the added safety of irrevocable insurance. Insured
Navigator Series further combines the advantages of providing interest
income free from regular federal income tax and state and local taxes when
held by residents of the state where issuers of bonds in such State Trusts
are located with the added safety of irrevocable insurance. Mortgage
Securities Trust offers an investment vehicle for investors who are
interested in obtaining safety of capital and a high level of current
distribution of interest income through investment in a fixed portfolio of
collateralized mortgage obligations. Equity Securities Trust offers
investors an opportunity to achieve capital appreciation together with a
high level of current income.

Tax Consequences of the Exchange Privilege and the Conversion Offer

A surrender of Units pursuant to the Exchange Privilege or the
Conversion Offer will constitute a "taxable event" to the Certificate-
holder under the Code. The Certificateholder will recognize a tax gain or
loss that will be of a long or short-term capital or ordinary income
nature depending on the length of time the Units have been held and other
factors. A Certificateholder's tax basis in the Units acquired pursuant
to the Exchange Privilege or Conversion Offer will be equal to the
purchase price of such Units. Investors should consult their own tax
advisors as to the tax consequences to them of exchanging or redeeming
units and participating in the Exchange Privilege or Conversion Offer.

OTHER MATTERS

Legal Opinions

The legality of the Units originally offered and certain matters
relating to federal and New York tax law have been passed upon by Battle
Fowler, 280 Park Avenue, New York, New York 10017, or Berger Steingut
Tarnoff & Stern, 600 Madison Avenue, New York, New York 10022, as counsel
for the Sponsors. Certain matters relating to California tax law have
been passed upon by Brown & Wood, as special California counsel to the
Sponsors. Certain matters relating to Florida tax law have been passed
upon by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quental, P.A., as
special counsel to the Sponsors. Certain matters relating to Pennsylvania
tax law have been passed upon by Saul, Erving, Remick & Saul, as special
Pennsylvania counsel to the Sponsors. Certain matters relating to
Virginia tax law have been passed upon by Hunton & Williams, as special
Virginia counsel to the Sponsors. Carter, Ledyard & Milburn, Two Wall
Street, New York, New York 10005 have acted as counsel for United States
Trust Company of New York.

Independent Auditors

The financial statements of the Trust included in Part A of this
Prospectus as of the dates set forth in Part A have been examined by KPMG
Peat Marwick Main & Co., independent certified public accountants for the
periods indicated in its reports appearing herein. The financial
statements of KPMG Peat Marwick Main & Co. have been so included in
reliance on its reports given upon the authority of said firm as experts
in accounting and auditing.

DESCRIPTION OF BOND RATINGS*

Standard & Poor's Corporation

A brief description of the applicable Standard & Poor's
Corporation rating symbols and their meanings is as follows:

* As described by the rating agencies.

<PAGE>

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.

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.

III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization
or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.

AAA -- This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong capacity to
pay principal and interest.

AA -- Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong, and
they differ from AAA issues only in small degrees.

A -- Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.

BBB -- Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
principal and interest for bonds in this category than for bonds in the A
category.

Plus (+) or Minus (-): To provide more detailed indications of
credit quality, the ratings from "AA" to "BB" may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.

Moody's Investors Service

A brief description of the applicable Moody's Investors
Service, Inc.'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. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements 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.

Those bonds in the A and Baa group which Moody's believes
possess the strongest investment attributes are designated by the symbol
A 1 and Baa 1. Other A bonds comprise the balance of the group. These
rankings (1) designate the bonds which offer the maximum in security
within their quality group, (2) designate bonds which can be bought for
possible upgrading in quality and (3) additionally afford the investor an
opportunity to gauge more precisely the relative attractiveness of
offerings in the market place.

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.

Con-Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are debt obligations 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. Rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.

* * *

<PAGE>
FOR USE WITH MUNICIPAL SECURITIES TRUST

73rd-74th and 77th Discount Series, Series 45, 46, 49, 52 and 53

MULTISTATE SERIES 38, 40, 41 and 42

==========================================================================

AUTHORIZATION FOR INVESTMENT IN MUNICIPAL SECURITIES TRUST,
____ Discount Series/Series ___
MULTI-STATE SERIES ____

TRP PLAN - TOTAL REINVESTMENT PLAN

I hereby elect to participate in the TRP Plan and am the owner of ____
units of __________ Trust/____ Discount Series/Series ___.

I hereby authorize the United States Trust Company New York, Trustee, to
pay all semi-annual or annual distributions of interest and principal (if
any) with respect to such units to the United States Trust Company, as TRP
Plan Agent, who shall immediately invest the distributions in units of the
available series of The State Trust above or, if unavailable, of other
available series of regular Municipal Securities Trust.

The foregoing authorization is subject in Date ____________, 19__
all respects to the terms and conditions
of participation set forth in the pros
pectus relating to such available series.

_________________________________ ____________________________________
Registered Holder (print) Registered Holder (print)

_________________________________ ____________________________________
Registered Holder Signature Registered Holder Signature
(Two signatures if joint tenancy)

My Brokerage Firm's Name

Street Address

City, State & Zip Code

Salesman's Name ___________________ Salesman's No.

==========================================================================

UNIT HOLDERS NEED ONLY DATE AND SIGN THIS FORM.

MAIL TO YOUR BROKER
OR

UNITED STATES TRUST COMPANY OF NEW YORK
ATTN: THE UNIT REINVESTMENT UNIT A
770 BROADWAY
NEW YORK, NEW YORK 10003

<PAGE>

INDEX MUNICIPAL SECURITIES
TRUST
MULTI-STATE SERIES
Title Page
(A Unit Investment Trust)
Summary of Essential Information . . . . A-5
Information Regarding the Trust . . . . . A-9 Prospectus
Financial and Statistical Information . . A-12
Audit and Financial Information Dated: April 29, 1994
Report of Independent Accountants . . . F-1
Statement of Net Assets . . . . . . . . F-2 Sponsors:
Statement of Operations . . . . . . . . F-3
Statement of Changes in Net Assets . . F-6 Bear, Stearns & Co. Inc.
Notes to Financial Statements . . . . . F-10 245 Park Avenue
Portfolio . . . . . . . . . . . . . . . F-13 New York, N.Y. 10167
The Trust . . . . . . . . . . . . . . . . 1 212-272-2500
The State Trusts . . . . . . . . . . . . 7
Public Offering . . . . . . . . . . . . . 51 Gruntal & Co.,
Estimated Long Term Return and Estimated Incorporated
Current Return . . . . . . . . . . . . 53 14 Wall Street
Rights of Certificateholders . . . . . . 53 New York, N.Y. 10005
Tax Status . . . . . . . . . . . . . . . 56 212-267-8800
Liquidity . . . . . . . . . . . . . . . . 62
Total Reinvestment Plan . . . . . . . . . 64 Trustee:
Trust Administration . . . . . . . . . . 68
Trust Expenses and Charges . . . . . . . 71 United States Trust
Exchange Privilege and Conversion Offer . 72 Company
Other Matters . . . . . . . . . . . . . . 77 of New York
Description of Bond Ratings . . . . . . . 78 770 Broadway
New York, N.Y. 10003
1-800-428-8890
Parts A and B of this Prospectus do
not contain all of the information set forth in Evaluator:
the registration statement and exhibits
relating thereto, filed with the Securities and Kenny S&P Evaluation
Exchange Commission, Washington, D.C., under Services
the Securities Act of 1933, and to which 65 Broadway
reference is made. New York, N.Y. 10006

* * *

This Prospectus does not constitute an offer to sell, or a
solicitation of any offer to buy, securities in any state to any person to
whom it is not lawful to make such offer in such state.

* * *

No person is authorized to give any information or to make any
representations not contained in Parts A and B of this Prospectus; and any
information or representation not contained herein must not be relied upon
as having been authorized by the Trust, the Trustee, the Evaluator, or the
Sponsors. The Trust is registered as a unit investment trust under the
Investment Company Act of 1940. Such registration does not imply that the
Trust or any of its Units have been guaranteed, sponsored, recommended or
approved by the United States or any state or any agency or officer
thereof.

<PAGE>
PART II

ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS

CONTENTS OF REGISTRATION STATEMENT

This Post-Effective Amendment to the Registration Statements 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.
Signatures.
Consent of Independent Auditors.
Consent of Counsel (included in Exhibits 99.3.1 and 99.3.1.1).
Consent of Special California Counsel (included in Exhibit 99.3.2).
Consent of Special Pennsylvania Counsel (included in Exhibit 99.3.3).
Consent of the Evaluator including Confirmation of Ratings
(included in Exhibit 99.5.1).

The following exhibits:

99.1.1 -- Form of Reference Trust Agreement, as amended (filed as
Exhibit 1.1 to Amendment No. 1 to Form S-6 Registration
Statement No. 33-29202 of Municipal Securities Trust,
Multi-State Series 37, on June 30, 1989 and incorporated
herein by reference).
99.1.1.1 -- Trust Indenture and Agreement for Municipal Securities
Trust, Multi-State Series 37 and Subsequent Series (filed
as Exhibit 1.1.1 to Amendment No. 1 to Registration
Statement No. 33-29202 of Municipal Securities Trust,
Multi-State Series 37 on June 30, 1989 and incorporated
herein by reference).

99.1.3.4 -- Certificate of Incorporation of Bear, Stearns & Co. Inc.,
as amended (filed as Exhibit 99.1.3.4 to Form S-6
Registration Statement Nos. 33-50891 and 33-50901 of
Insured Municipal Securities Trust, New York Navigator
Insured Series 15 and New Jersey Navigator Insured
Series 11; and Municipal Securities Trust, Multi-State
Series 44, respectively, on December 9, 1993 and
incorporated herein by reference).

99.1.3.5 -- By-Laws of Bear, Stearns & Co. Inc., as amended (filed as
Exhibit 99.1.3.5 to Form S-6 Registration Statement Nos.
33-50891 and 33-50901 of Insured Municipal Securities
Trust, New York Navigator Insured Series 15 and New Jersey
Navigator Insured Series 11; and Municipal Securities
Trust, Multi-State Series 44, respectively, on December 9,
1993 and incorporated herein by reference).

99.1.3.6 -- Certificate of Incorporation of Gruntal & Co.,
Incorporated, as amended (filed as Exhibit 1.3.6 to
Form S-6 Registration Statement No. 33-36316 of Mortgage
Securities Trust, CMO Series 1 on August 10, 1990 and
incorporated herein by reference).

99.1.3.7 -- By-laws of Gruntal & Co., Incorporated, as amended (filed
as Exhibit 1.3.7 to Form S-6 Registration Statement
No. 33-36316 of Mortgage Securities Trust, CMO Series 1 on
August 10, 1990 and incorporated herein by reference).

99.1.4 -- Form of Agreement Among Underwriters (filed as Exhibit 1.4
to Amendment No. 1 to Registration Statement No. 33-28384
of Insured Municipal Securities Trust, 47th Discount
Series and Series 20 on June 16, 1989 and incorporated
herein by reference).

99.2.1 -- Form of Certificate (filed as Exhibit 2.1 to Amendment
No. 1 to Registration Statement No. 33-28384 of Insured
Municipal Securities Trust, 47th Discount Series and
Series 20 on June 16, 1989 and incorporated herein by
reference).

99.3.1 -- Opinion of Berger Steingut Tarnoff & Stern (formerly
Berger & Steingut) as to the legality of the securities
being registered, including their consent to the filing
thereof and to the use of their name under the headings
"Tax Status" and "Legal Opinions" in the Prospectus, and
to the filing of their opinion regarding tax status of the
Trust (filed as Exhibit 3.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-29202 on June 30, 1989 and
incorporated herein by reference).

99.3.1.1 -- Opinion of Battle Fowler as to tax status of Securities
being registered including their consent to the delivery
thereof and to the use of their name under the heading
"Tax Status" in the Prospectus (filed as Exhibit 3.1.1 to
Post-Effective Amendment No. 1 to Form S-6 Registration
Statement No. 33-29202 of Municipal Securities Trust,
Multi-State Series 37 on May 1, 1990 and incorporated
herein by reference).

99.3.2 -- Opinion of Brown & Wood, Special California Counsel (filed
as Exhibit 3.2 to Amendment No. 1 to Form S-6 Registration
Statement No. 33-29202 of Municipal Securities Trust,
Multi-State Series 37 on June 30, 1989 and incorporated
herein by reference).

*99.3.3 -- Opinion of Saul, Ewing, Remick & Saul, Special
Pennsylvania Counsel.

*99.5.1 -- Consent of the Evaluator including Confirmation of
Ratings.

99.6.0 -- Power of Attorney of Bear, Stearns & Co. Inc., the
Depositor, by its Officers and a majority of its Directors
(filed as Exhibit 6.0 to Post-Effective Amendment No. 8 to
Form S-6 Registration Statements Nos. 2-92113, 2-92660,
2-93073, 2-93884 and 2-94545 of Municipal Securities
Trust, Multi-State Series 4, 5, 6, 7 and 8, respectively,
on October 30, 1992 and incorporated herein by reference).

99.6.1 -- Power of Attorney of Gruntal & Co., Incorporated, by its
officers and a majority of its Directors (filed as
Exhibit 6.1 to Form S-6 Registration Statement
No. 33-36316 of Mortgage Securities Trust, CMO Series 1 on
August 10, 1990 and incorporated herein by reference).

99.7.0 -- Form of Agreement Among Co-Sponsors (filed as Exhibit 7 to
Amendment No. 1 to Form S-6 Registration Statement
No. 33-28384 of Insured Municipal Securities Trust, 47th
Discount Series and Series 20 on June 16, 1989 and
incorporated herein by reference).

* Being filed by this Amendment.

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant, Municipal Securities Trust, Multi-State Series 37 certifies
that it has met all of the requirements for effectiveness of this Post-
Effective Amendment to the Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933. The registrant has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York on the 19th of April, 1994.

MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 37
(Registrant)

BEAR, STEARNS & CO. INC.
(Depositor)

By: PETER J. DeMARCO
(Authorized Signator)

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statements has been signed
below by the following persons who constitute the principal officers and a
majority of the directors of Bear, Stearns & Co. Inc., the Depositor, in
the capacities and on the dates indicated.

Name Title Date

ALAN C. GREENBERG Chairman of the Board, Chief )
Executive Officer, Director and )
Senior Managing Director )
JAMES E. CAYNE President, Director and Senior )
Managing Director )April 19, 1994
ALVIN H. EINBENDER Chief Operating Officer, Executive)
Vice President, Director and )
JOHN C. SITES, JR. Senior Managing Director )
Executive Vice President, Director)By:PETER J.DeMARCO
MICHAEL L. TARNOPOL and Senior Managing Director )
Executive Vice President, Director)
VINCENT J. MATTONE and Senior Managing Director )
Executive Vice President, Director) Attorney-in-Fact*
ALAN D. SCHWARTZ and Senior Managing Director )
Executive Vice President, Director)
DOUGLAS P.C. NATION and Senior Managing Director )
Director and Senior Managing )
WILLIAM J. MONTGORIS Director )
Chief Financial Officer, Senior )
Vice President-Finance and Senior )
KENNETH L. EDLOW Managing Director )
Secretary and Senior Managing )
MICHAEL MINIKES Director )
Treasurer and Senior Managing )
MICHAEL J. ABATEMARCO Director )
Controller, Assistant Secretary )
MARK E. LEHMAN and Senior Managing Director )
Senior Vice President - General )
Counsel and Senior Managing )
FREDERICK B. CASEY Director )
Assistant Treasurer and Senior )
Managing Director )

_______________

* An executed power of attorney was filed as Exhibit 6.0 to Post-
Effective Amendment No. 8 to Registration Statements Nos. 2-92113,
2-92660, 2-93073, 2-93884 and 2-94545 on October 30, 1992.

<PAGE>
SIGNATURES

INSURED MUNICIPAL SECURITIES TRUST,
MULTI-STATE SERIES 37
(Registrant)

GRUNTAL & CO., INCORPORATED
(Depositor)

By: ROBERT SABLOWSKY
(Authorized Signatory)

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed
below by the following persons, who constitute the principal officers and
a majority of the directors of Gruntal & Co., Incorporated, the Depositor,
in the capacities and on the dates indicated.

Name Title Date

HOWARD SILVERMAN Chief Executive Officer and ) April 19, 1994
Director )
EDWARD E. BAO Executive Vice President and )
Director )
BARRY RICHTER Executive Vice President and )
Director )By:ROBERT SABLOWSKY
ROBERT SABLOWSKY Executive Vice President and )
Director )
LIONEL G. HEST Senior Executive and Director ) Attorney-in-Fact*

_______________

* An executed copy of the power of attorney was filed as Exhibit 6.1
to Registration Statement No. 33-36316 on August 10, 1990.

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the use in these Post-Effective Amendments to the Registration
Statements of our reports on the financial statements of Municipal Securities
Trust, Multi-State Series 37 included herein and to the reference to our firm
under the heading "Independent Auditors" in the Prospectus which is part of
this Registration Statement.

KPMG PEAT MARWICK

New York, New York
April 15, 1994

<PAGE>
EXHIBIT INDEX

Exhibit Description Page No.

99.1.1 Form of Reference Trust Agreement, as amended (filed
as Exhibit 1.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-29202 of Municipal
Securities Trust, Multi-State Series 37 on June 30,
1989 and incorporated herein by reference).

99.1.1.1 Trust Indenture and Agreement for Municipal
Securities Trust, Multi-State Series 37 and
Subsequent Series (filed as Exhibit 1.1.1 to
Amendment No. 1 to Registration Statement
No. 33-29202 of Municipal Securities Trust, Multi-
State Series 37 on June 30, 1989 and incorporated
herein by reference).

99.1.3.4 Certificate of Incorporation of Bear, Stearns & Co.
Inc., as amended (filed as Exhibit 99.1.3.4 to Form
S-6 Registration Statement Nos. 33-50891 and 33-
50901 of Insured Municipal Securities Trust, New
York Navigator Insured Series 15 and New Jersey
Navigator Insured Series 11; and Municipal
Securities Trust, Multi-State Series 44,
respectively, on December 9, 1993 and incorporated
herein by reference).

99.1.3.5 By-Laws of Bear, Stearns & Co. Inc., as amended
(filed as Exhibit 99.1.3.5 to Form S-6 Registration
Statement Nos. 33-50891 and 33-50901 of Insured
Municipal Securities Trust, New York Navigator
Insured Series 15 and New Jersey Navigator Insured
Series 11; and Municipal Securities Trust, Multi-
State Series 44, respectively, on December 9, 1993
and incorporated herein by reference).

99.1.3.6 Certificate of Incorporation of Gruntal & Co.,
Incorporated, as amended (filed as Exhibit 1.3.6 to
Form S-6 Registration Statement No. 33-36316 of
Mortgage Securities Trust, CMO Series 1 on August
10, 1990 and incorporated herein by reference).

99.1.3.7 By-laws of Gruntal & Co., Incorporated, as amended
(filed as Exhibit 1.3.7 to Form S-6 Registration
Statement No. 33-36316 of Mortgage Securities Trust,
CMO Series 1 on August 10, 1990 and incorporated
herein by reference).

99.1.4 Form of Agreement Among Underwriters (filed as
Exhibit 1.4 to Amendment No. 1 to Registration
Statement No. 33-28384 of Insured Municipal
Securities Trust, 47th Discount Series and Series 20
on June 16, 1989 and incorporated herein by
reference).

99.2.1 Form of Certificate (filed as Exhibit 2.1 to
Amendment No. 1 to Registration Statement
No. 33-28384 of Insured Municipal Securities Trust,
47th Discount Series and Series 20 on June 16, 1989
and incorporated herein by reference).

99.3.1 Opinion of Berger Steingut Tarnoff & Stern (formerly
Berger & Steingut) as to the legality of the
securities being registered, including their consent
to the filing thereof and to the use of their name
under the headings "Tax Status" and "Legal Opinions"
in the Prospectus, and to the filing of their
opinion regarding tax status of the Trust (filed as
Exhibit 3.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-29202 on June 30, 1989
and incorporated herein by reference).

99.3.1.1 Opinion of Battle Fowler as to tax status of
securities being registered including their consent
to the filing thereof and to the use of their name
under the heading "Tax Status" in the Prospectus
(filed as Exhibit 3.1.1 to Post-Effective Amendment
No. 1 to Form S-6 Registration Statement
No. 33-29202 of Municipal Securities Trust, Multi-
State Series 37 on May 1, 1990 and incorporated
herein by reference).

99.3.2 Opinion of Brown & Wood, Special California Counsel
(filed as Exhibit 3.2 to Amendment No. 1 to Form S-6
Registration Statement No. 33-29202 of Municipal
Securities Trust, Multi-State Series 37 on June 30,
1989 and incorporated herein by reference).

99.3.3 Opinion of Saul, Ewing, Remick & Saul, Special
Pennsylvania Counsel...............................

99.5.1 Consent of the Evaluator including Confirmation of
Ratings............................................

99.6.0 Power of Attorney of Bear, Stearns & Co. Inc., the
Depositor, by its Officers and a majority of its
Directors (filed as Exhibit 6.0 to Post-Effective
Amendment No. 8 to Form S-6 Registration Statements
Nos. 2-92113, 2-92660, 2-93073, 2-93884 and 2-94545
of Municipal Securities Trust, Multi-State Series 4,
5, 6, 7 and 8, respectively, on October 30, 1992 and
incorporated herein by reference).

99.6.1 Power of Attorney of Gruntal & Co., Incorporated, by
its officers and a majority of its Directors (filed
as Exhibit 6.1 to Form S-6 Registration Statement
No. 33-36316 of Mortgage Securities Trust, CMO
Series 1 on August 10, 1990 and incorporated herein
by reference).

99.7.0 Form of Agreement Among Co-Sponsors (filed as
Exhibit 7 to Amendment No. 1 to Form S-6
Registration Statement No. 33-28384 of Insured
Municipal Securities Trust, 47th Discount Series and
Series 20 on June 16, 1989 and incorporated herein
by reference).

Law Offices of
SAUL, EWING, REMICK & SAUL
3800 Centre Square West
Philadelphia, PA 19102
(215) 972-7777

Harrisburg, Pennsylvania Trenton, New Jersey
Malvern, Pennsylvania Voorhees, New Jersey
New York, New York Wilmington, Delaware

Cable Address Bidsal
Telecopier (215) 972-7725
TWX 83-4798

April 18, 1994

Bear, Stearns & Co. Inc.
245 Park Avenue
New York, NY 10167

Re: Pennsylvania Trust of the
Municipal Securities Trust,
Multi-State Series 37

Gentlemen:

We are acting as special counsel with respect to Pennsylvania
tax matters for the Pennsylvania Trust of the Municipal Securities Trust,
Multi-State Series 37 (the "Trust") in connection with the issuance of
Units of fractional undivided interests in the Trust, under a Trust
Indenture and Agreement among Bear, Stearns & Co. Inc., as Depositor,
United States Trust Company, as Trustee and Standard & Poor's Corporation,
as Evaluator. It is our understanding that the Trust consists of a
portfolio composed of interest-bearing obligations (the "Bonds") issued by
the Commonwealth of Pennsylvania, by political subdivisions,
municipalities and other governmental authorities within the Commonwealth
of Pennsylvania (the "Pennsylvania Bonds") or by the Government of Puerto
Rico or its public authorities (the "Puerto Rico Bonds").

We have not examined any preliminary or final official
statements of issuers of the Bonds, nor have we examined any legal
opinions, or summaries of such opinions, relating to the validity of the
Bonds in the Trust, the exemption of interest thereon from federal income
tax, the exemption of the Bonds from personal property taxes in
Pennsylvania, or the exemption of the interest on and any gain from the
sale of the Bonds from the Pennsylvania personal income tax, given by bond
counsel to the issuer at the time such Bonds were issued. Further, we
have made no review of the proceedings relating to the issuance of the
Bonds or of the basis for such opinions. Our opinion expressed below is
based in part on the assurances of Bear, Stearns & Co. Inc. that the Bonds
deposited in the Trust have been issued only by the Commonwealth of
Pennsylvania, by or on behalf of political subdivisions, municipalities or
other governmental authorities within the Commonwealth of Pennsylvania or
by the Government of Puerto Rico or its public authorities.

We have examined portions of the Prospectus dated April 30, 1993
that pertain to the Trust and certified copies, or copies otherwise
identified to our satisfaction, of such other documents as we have deemed
necessary or appropriate for the purpose of rendering this opinion.

Based upon the foregoing, we are of the opinion that:

(1) Units evidencing fractional undivided interests in the
Trust, to the extent represented by obligations issued by the Commonwealth
of Pennsylvania, any public authority, commission, board or other agency
created by the Commonwealth of Pennsylvania, any political subdivision of
the Commonwealth of Pennsylvania or any public authority created by any
such political subdivision, or by the Government of Puerto Rico or its
public authorities, are not taxable under any of the personal property
taxes presently in effect in Pennsylvania;

(2) Distributions of interest income to Unitholders that would
not be taxable if received directly by a Pennsylvania resident are not
subject to personal income tax under the Pennsylvania Tax Reform Code of
1971; nor will such interest be taxable under Philadelphia School District
Investment Income Tax imposed on Philadelphia resident individuals;

(3) A Unitholder which is an individual, estate or trust will
have a taxable event under the Pennsylvania state and local income tax
referred to in the preceding paragraph upon the redemption or sale of
Units;

(4) A Unitholder which is a corporation will have a taxable
event under the Pennsylvania Corporate Net Income Tax or, if applicable,
the Mutual Thrift Institutions Tax, upon the redemption or sale of its
Units. Interest income distributed to Unitholders which are corporations
is not subject to Pennsylvania Corporate Net Income Tax or Mutual Thrift
Institutions Tax. However, banks, title insurance companies and trust
companies may be required to take the value of Units into account in
determining the taxable value of their shares subject to Shares Tax;

(5) Under Act No. 68 of December 3, 1993, gains derived by the
Trust from the sale, exchange or other disposition of Pennsylvania Bonds
may be subject to Pennsylvania personal or corporate income taxes. Those
gains which are distributed by the Trust to Unitholders who are
individuals will be subject to Pennsylvania Personal Income Tax and, for
residents of Philadelphia, to Philadelphia School District Investment
Income Tax. For Unitholders which are corporations, the distributed gains
will be subject to Corporate Net Income Tax or Mutual Thrift Institutions
Tax.

(6) For Pennsylvania Bonds, gains which are not distributed by
the Trust will nevertheless be taxable to Unitholders if derived by the
Trust from the sale, exchange or other disposition of these Bonds issued
on or after February 1, 1994. Such gains which are not distributed by
the Trust will remain nontaxable to Unitholders if derived by the Trust
from the sale, exchange or other disposition of Bonds issued prior to
February 1, 1994. However, for gains from the sale, exchange or other
disposition of these Bonds to be taxable under the Philadelphia School
District Investment Income Tax, the Bonds must be held for six months or
less;

(7) Gains from the sale, exchange or other disposition of
Puerto Rico Bonds will be taxable to Unit holders if distributed or
retained by the Trust. However, for gains from the sale, exchange or
other disposition of these Bonds to be taxable under the Philadelphia
School District Investment Income Tax, the Bonds must be held for six
months or less;

(8) Units are subject to Pennsylvania inheritance and estate
taxes;

(9) Any proceeds paid under insurance policies issued to the
Trustee or obtained by issuers or the underwriters of the Bonds, the
Sponsor or others which represent interest on defaulted obligations held
by the Trustee will be excludable from Pennsylvania gross income if, and
to the same extent as, such interest would have been so excludable if paid
in the normal course by the issuer of the defaulted obligations; and

(10) The Trust is not taxable as a corporation under
Pennsylvania tax laws applicable to corporations.

On December 3, 1993, changes to Pennsylvania law affecting
taxation of income and gains from the sale of Commonwealth of Pennsylvania
and local obligations were enacted. Among these changes was the repeal of
the exemption from tax of gains realized upon the sale or other
disposition of such obligations. The Pennsylvania Department of Revenue
has issued only limited guidance concerning these changes, and that
guidance has not addressed the issues noted above. The opinions expressed
above are based on our analysis of the law but are subject to modification
upon review of regulations or other guidance that may be issued by the
Department of Revenue.

We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement relating to the Units referred to above and to
the use of our name and to the reference to our firm in the said
Registration Statement and in the related Prospectus.

Very truly yours,

Saul, Ewing, Remick & Saul

SERS:LST/cp

<PAGE>

KENNY S&P EVALUATION SERVICES
A Division of Kenny Information Systems, Inc.

65 Broadway
New York, New York 10006-2511
Telephone 212/770-4990

F.A. Shinal
Senior Vice President
Chief Financial Officer

April 29, 1994

Bear, Stearns & Co., Inc.
245 Park Avenue
New York, NY 10167

Gruntal & Co., Inc.
14 Wall Street
New York, NY 10005

RE: Municipal Securities Trust
Multi-State Series 37

Gentlemen:

We have examined the post-effective Amendment to the
Registration Statement File No. 33-29202 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,

F. A. Shinal
Senior Vice President
FAS/cns

<PAGE>