<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1995
REGISTRATION NOS. 33-57447
33-55009
33-55105
33-56631
33-56645
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. EXACT NAME OF TRUST:
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 201
CONNECTICUT TRUST 97
MARYLAND TRUST 94
NEW YORK TRUST 140
PENNSYLVANIA TRUST 113
B. NAME OF DEPOSITOR:
SMITH BARNEY INC.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
SMITH BARNEY INC.
1345 Avenue of the Americas
New York, New York 10105
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
STEPHEN J. TREADWAY
Smith Barney Inc.
1345 Avenue of the Americas
New York, New York 10105
COPY TO:
PIERRE DE SAINT PHALLE, ESQ.
Davis Polk & Wardwell
450 Lexington Ave.
New York, New York 10017
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
AN INDEFINITE NUMBER OF UNITS OF BENEFICIAL INTEREST PURSUANT TO RULE 24f-2
PROMULGATED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
F. PROPOSED MAXIMUM AGGREGATE OFFERING PRICE TO THE PUBLIC OF THE SECURITIES
BEING REGISTERED:
INDEFINITE
G. AMOUNT OF FILING FEE:
$500 (AS REQUIRED BY RULE 24f-2)
H. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
[X] Check box if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------
TAX EXEMPT
SECURITIES
TRUST National Trust 201 Connecticut Trust 97
Maryland Trust 94 New York Trust 140
Pennsylvania Trust 113
- ---------------------- ---------------------------------------------------
16,700 UNITS
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
IN THE OPINION OF COUNSEL UNDER EXISTING LAW, INTEREST INCOME TO THE TRUSTS AND
TO UNIT HOLDERS (EXCEPT IN CERTAIN INSTANCES DEPENDING UPON THE UNIT HOLDERS)
IS EXEMPT FROM REGULAR FEDERAL INCOME TAX AND FROM CERTAIN STATE AND LOCAL
PERSONAL INCOME TAXES, TO THE EXTENT INDICATED, IN THE STATE FOR WHICH A STATE
TRUST IS NAMED. CAPITAL GAINS, IF ANY, ARE SUBJECT TO TAX.
THE TAX EXEMPT SECURITIES TRUST consists of separate underlying unit investment
trusts designated as National Trust 201, Connecticut Trust 97, Maryland Trust
94, New York Trust 140 and Pennsylvania Trust 113 (the "National Trust," the
"Connecticut Trust," the "Maryland Trust", the "New York Trust," and the
"Pennsylvania Trust," respectively) (the "Trusts" or the "Trust" as the context
requires and in the case of a Trust designated by a state name, the "State
Trust" or the "State Trusts," as the context requires). Each Trust was formed
for the purpose of obtaining for its Unit holders tax-exempt interest income
and conservation of capital through investment in a fixed portfolio of
municipal bonds rated at the time of deposit in the category A or better by
Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. ("Standard &
Poor's"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("Duff & Phelps"). (See
"Portfolio of Securities".) Each State Trust comprises a fixed portfolio of
interest-bearing obligations issued primarily by or on behalf of the state for
which such State Trust is named and counties, municipalities, authorities or
political subdivisions thereof. Interest on all bonds in each Trust is in the
opinion of counsel under existing law, with certain exceptions, exempt from
regular Federal income taxes (see Part B, "Taxes") and from certain state and
local personal income taxes in the state for which a State Trust is named, but
may be subject to other state and local taxes. (See discussions of State and
local taxes in Part C.)
THE PUBLIC OFFERING PRICE of the Units of each Trust during the initial public
offering period is equal to the aggregate offering price of the underlying
bonds in the Trust's portfolio divided by the number of Units outstanding in
such Trust, plus a sales charge. The Public Offering Price of the Units of each
Trust following the initial public offering period is equal to the aggregate
bid price of the underlying bonds in the Trust's portfolio divided by the
number of Units outstanding in such Trust, plus a sales charge. During the
initial public offering period the sales charge is equal to 4.70% of the Public
Offering Price (4.932% of the aggregate offering price of the bonds per Unit)
for each Trust, and following the initial public offering period this charge
will be equal to 5.00% of the Public Offering Price (5.263% of the aggregate
bid price of the bonds per Unit) for each Trust. See Part B, "Public Offering--
Distribution of Units" for a description of the initial public offering period.
If the Units had been available for sale on February 8, 1995, the Public
Offering Price per Unit (including the sales charge) would have been $998.05,
$1,027.89, $968.84, $1,000.01 and $1,020.85 for the National Trust, Connecticut
Trust, Maryland Trust, New York Trust and Pennsylvania Trust, respectively. In
addition, there will be added an amount equal to accrued interest from the day
after the Date of Deposit to the date of settlement (normally five business
days after purchase).
THE SPONSOR, although not obligated to do so, intends to maintain a market for
the Units of the Trusts at prices based upon the aggregate bid price of the
underlying bonds, as more fully described under "Public Offering--Market for
Units" in Part B. If such a market is not maintained, a Unit holder may be able
to dispose of his Units only through redemption, at prices that are also based
upon the aggregate bid price of the underlying bonds.
MONTHLY DISTRIBUTIONS of principal and interest received by each Trust will be
made on or shortly after the fifteenth day of each month to holders of record
on the first day of that month. For further information regarding the
distributions by each Trust, see "Summary of Essential Information".
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
The date of this Prospectus is February 9, 1995
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 8, 1995+
SPONSOR RECORD DATES
Smith Barney Inc.
The first day of each month,
commencing March 1, 1995
TRUSTEE
DISTRIBUTION DATES
United States Trust Company of
New York
The fifteenth day of each
month,** commencing March 15,
1995
EVALUATOR
Kenny S & P Evaluation EVALUATION TIME
Services,
a division of J.J. Kenny Co., As of 1:00 P.M. on the Date of
Inc. Deposit. Thereafter, as of
4:00 P.M. New York Time.
DATE OF DEPOSIT AND OF TRUST
AGREEMENT
EVALUATOR'S FEE
The Evaluator will receive a
February 8, 1995 fee of $.30 per bond per
evaluation. (See Part B,
"Evaluator--Responsibility"
and "Public Offering--Offering
Price".)
MANDATORY TERMINATION DATE*
Each Trust will terminate on the
date of maturity, redemption,
sale or other disposition of the
last Bond held in the Trust.
SPONSOR'S ANNUAL PORTFOLIO
SUPERVISION FEE***
Maximum of $.25 per $1,000
face amount of the underlying
Bonds.
- -------
+The Date of Deposit. The Date of Deposit is the date on which the Trust
Agreement was signed and the deposit with the Trustee was made.
* The actual date of termination of each trust may be considerably earlier
(see Part B, "Amendment and Termination of the Trust Agreement--
Termination").
** The first monthly income distribution of $3.97, $3.84, $3.64, $3.86 and
$3.91 for the National Trust, Connecticut Trust, Maryland Trust, New York
Trust and Pennsylvania Trust, respectively, will be made on March 15,
1995.
***In addition to this amount, the Sponsor may be reimbursed for bookkeeping
and other administrative expenses not exceeding its actual costs.
A-2
<PAGE>
<TABLE>
<CAPTION>
NATIONAL CONNECTICUT MARYLAND NEW YORK PENNSYLVANIA
TRUST 201 TRUST 97 TRUST 94 TRUST 140 TRUST 113
---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Principal Amount of
Bonds in Trust......... $6,000,000 $2,700,000 $2,250,000 $3,000,000 $2,750,000
Number of Units......... 6,000 2,700 2,250 3,000 2,750
Principal Amount of
Bonds in Trust per
Unit................... $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 1,000
Fractional Undivided In-
terest in Trust per
Unit................... 1/6,000 1/2,700 1/2,250 1/3,000 1/2,750
Minimum Value of Trust:
Trust Agreement may be
Terminated if Princi-
pal Amount is less
than................. $3,000,000 $1,350,000 $1,125,000 $1,500,000 $1,375,000
Calculation of Public
Offering Price per
Unit*:
Aggregate Offering
Price of Bonds in
Trust................ $5,706,865 $2,644,861 $2,077,424 $2,859,046 $2,675,393
========== ========== ========== ========== ==========
Divided by Number of
Units................ $ 951.14 $ 979.58 $ 923.30 $ 953.01 $ 972.87
Plus: Sales Charge
(4.70% of the Public
Offering Price)...... $ 46.91 $ 48.31 $ 45.54 $ 47.00 $ 47.98
---------- ---------- ---------- ---------- ----------
Public Offering Price
per Unit............. $ 998.05 $ 1,027.89 $ 968.84 $ 1,000.01 $ 1,020.85
Plus: Accrued Inter-
est*................. $ 1.21 $ 1.17 $ 1.11 $ 1.17 $ 1.19
---------- ---------- ---------- ---------- ----------
Total............... $ 999.26 $ 1,029.06 $ 969.95 $ 1,001.18 $ 1,022.04
========== ========== ========== ========== ==========
Sponsor's Initial Repur-
chase Price per Unit
(per Unit Offering
Price of Bonds)*...... $ 951.14 $ 979.58 $ 923.30 $ 953.01 $ 972.87
Approximate Redemption
Price per Unit (per
Unit Bid Price of
Bonds)**............. $ 947.14 $ 975.58 $ 919.30 $ 949.01 $ 968.87
---------- ---------- ---------- ---------- ----------
Difference Between per
Unit Offering and Bid
Prices of Bonds........ $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00
========== ========== ========== ========== ==========
Calculation of Estimated
Net Annual Income per
Unit:
Estimated Annual In-
come per Unit........ $ 64.84 $ 62.74 $ 59.63 $ 63.01 $ 63.70
Less: Estimated Trust-
ee's Annual Fee***... $ 1.69 $ 1.66 $ 1.63 $ 1.67 $ 1.68
Less: Other Estimated
Annual Expenses...... $ .87 $ .84 $ .88 $ .86 $ .82
---------- ---------- ---------- ---------- ----------
Estimated Net Annual
Income per Unit...... $ 62.28 $ 60.24 $ 57.12 $ 60.48 $ 61.20
========== ========== ========== ========== ==========
Calculation of Monthly
Income Distribution
per Unit:
Estimated Net Annual
Income per Unit...... $ 62.28 $ 60.24 $ 57.12 $ 60.48 $ 61.20
Divided by 12......... $ 5.19 $ 5.02 $ 4.76 $ 5.04 $ 5.10
Accrued interest from
the day after the
Date of Deposit to
the first record
date**............... $ 3.97 $ 3.84 $ 3.64 $ 3.86 $ 3.91
First distribution per
unit................... $ 3.97 $ 3.84 $ 3.64 $ 3.86 $ 3.91
Daily Rate (360-day ba-
sis) of Income Accrual
per Unit............... $ .1730 $ .1673 $ .1586 $ .1680 $ .1700
Estimated Current Return
based on Public Offer-
ing Price****.......... 6.24% 5.86% 5.90% 6.05% 6.00%
Estimated Long-Term Re-
turn****............... 6.26% 5.84% 6.00% 5.96% 5.97%
</TABLE>
- -------
* Accrued interest will be added from the day after the Date of Deposit to
the date of settlement (normally five business days after purchase).
** This figure will also include accrued interest from the day after the Date
of Deposit to the date of settlement (normally five business days after
purchase) and the net of cash on hand in the relevant Trust, accrued
expenses of such Trust and amounts distributable to holders of record of
Units of such Trust as of a date prior to the computation date, on a pro
rata share basis. (See Part B, "Redemption of Units--Computation of
Redemption Price per Unit.")
*** Per $1,000 principal amount of Bonds, plus expenses. (See Part B, "Rights
of Unit Holders--Distribution of Interest and Principal.")
**** The Estimated Current Return is calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit. The
Estimated Net Annual Interest Income per Unit will vary with changes in
fees and expenses of the Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Bonds while the
Public Offering Price will vary with changes in the offering price of the
underlying Bonds; therefore, there is no assurance that the present
Estimated Current Return indicated above will be realized in the future.
The Estimated Long-Term Return is calculated using a formula which (1)
takes into consideration, and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Bonds in the Trust and (2) takes into account the expenses and
sales charge associated with each Unit. Since the market values and
estimated retirements of the Bonds and the expenses of the Trust will
change, there is no assurance that the present Estimated Long-Term Return
as indicated above will be realized in the future. The Estimated Current
Return and Estimated Long-Term Return are expected to differ because the
calculation of the Estimated Long-Term Return reflects the estimated date
and amount of principal returned while the Estimated Current Return
calculations include only Net Annual Interest Income and Public Offering
Price as of the Date of Deposit. The effect of the delay in the payment to
Unit holders for the first few months of Trust operations, which results
in a lower true return to Unit holders, is not reflected in either
calculation (a projected cash flow statement as of the Date of Deposit is
available upon request from the Trustee).
A-3
<PAGE>
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT
NATIONAL TRUST 201
The Portfolio of the National Trust contains 15 issues of Bonds of issuers
located in 10 States and the District of Columbia. All of the issues are
payable from the income of specific projects or authorities and are not
supported by the issuer's power to levy taxes. Although income to pay such
Bonds may be derived from more than one source, the primary sources of such
income and the percentage* of the Bonds in this Trust deriving income from
such sources are as follows: hospital and health care facilities: 38.6%;
housing facilities: 28.3%; power facilities: 11.9%; educational facilities:
12.2%; other: 9.0%. The Trust is considered to be concentrated in hospital and
health care facilities and housing facilities issues.+ (See Part B, "Tax
Exempt Securities Trust--Risk Factors" for a brief summary of additional
considerations relating to certain of these issues.) Twelve Bonds in this
Trust have been issued with an "original issue discount." (See Part B,
"Taxes.") The average life to maturity of the Bonds in the National Trust is
27.0 years.
As of the Date of Deposit, 85.3% of the Bonds in this Trust are rated by
Standard & Poor's (3.4% rated AA and 81.9% rated A); 14.7% are rated A by
Moody's. For a description of the meaning of the applicable rating symbols as
published by the rating agencies, see Part B, "Bond Ratings." It should be
emphasized, however, that the ratings of the rating agencies represent their
opinions as to the quality of the Bonds which they undertake to rate, and that
these ratings are general and are not absolute standards of quality and may
change from time to time.
None of the Bonds in the National Trust were acquired from the Sponsor as
sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
CONNECTICUT TRUST 97
The Portfolio of the Connecticut Trust contains 9 issues of Bonds of issuers
located in the State of Connecticut and the Commonwealth of Puerto Rico. Of
the Bonds in this Trust two were issued by issuers in the Commonwealth of
Puerto Rico (representing 11.9%* of the Bonds in the Trust) and were issued to
finance highway and pollution control facilities. The remaining issues are
payable from the income of specific projects or authorities and are not
supported by the issuer's power to levy taxes. Although income to pay such
Bonds may be derived from more than one source, the primary sources of such
income and the percentage of the Bonds in this Trust deriving income from such
sources are as follows: hospital and health care facilities: 58.7%; housing
facilities: 29.4%. The Trust is considered to be concentrated in hospital and
health care facilities and housing facilities issues.+ (See Part B, "Tax
Exempt Securities Trust--Risk Factors" for a brief summary of additional
considerations relating to certain of these issues.) 31.5% of the Bonds in
this Trust are insured as to timely payment of principal and interest by
certain insurance companies (MBIA, 31.5%) (see Part B, "Tax Exempt Securities
Trust--Risk Factors--Insurance"). Five Bonds in this Trust have been issued
with an "original issue discount." (See Part B, "Taxes.") The average life to
maturity of the Bonds in the Connecticut Trust is 27.3 years.
As of the Date of Deposit, 91.9% of the Bonds in this Trust are rated by
Standard & Poor's (31.5% rated AAA, 47.3% rated AA and 13.1% rated A); 8.1%
are rated A by Moody's. For a description of the meaning of the applicable
rating symbols as published by the rating agencies, see Part B, "Bond
Ratings." It should be emphasized, however, that the ratings of the rating
agencies represent their opinions as to the quality of the Bonds which they
undertake to rate, and that these ratings are general and are not absolute
standards of quality and may change from time to time.
12.0% of the Bonds in the Connecticut Trust were acquired from the Sponsor
as sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
- -------
* Percentages computed on the basis of the aggregate offering price of the
Bonds in the Trust on the Date of Deposit.
+ A Trust is considered to be "concentrated" in a particular category when the
Bonds in that category constitute 25% or more of the aggregate offering price
of the Bonds in the Trust.
A-4
<PAGE>
MARYLAND TRUST 94
The Portfolio of the Maryland Trust contains 8 issues of Bonds of issuers
located in the State of Maryland and the Commonwealth of Puerto Rico. Of the
Bonds in this Trust, one was issued by an issuer in the Commonwealth of Puerto
Rico (representing 17.2%* of the Bonds in the Trust) and was issued to finance
highway facilities. The remaining issues are payable from the income of
specific projects or authorities and are not supported by the issuer's power to
levy taxes. Although income to pay such Bonds may be derived from more than one
source, the primary sources of such income and the percentage of the Bonds in
this Trust deriving income from such sources are as follows: hospital and
health care facilities: 49.2%; housing facilities: 33.6%. The Trust is
considered to be concentrated in hospital and health care facilities and
housing facilities issues.+ (See Part B, "Tax Exempt Securities Trust--Risk
Factors" for a brief summary of additional considerations relating to certain
of these issues.) 5.7% of the Bonds in this Trust are insured as to timely
payment of principal and interest by certain insurance companies (AMBAC, 5.7%)
(see Part B, "Tax Exempt Securities Trust--Risk Factors--Insurance"). Four
Bonds in this Trust have been issued with an "original issue discount." (See
Part B, "Taxes.") The average life to maturity of the Bonds in the Maryland
Trust is 26.7 years.
As of the Date of Deposit, 71.2% of the Bonds in this Trust are rated by
Standard & Poor's (29.6% rated AAA and 41.6% rated A); 28.8% are rated by
Moody's (9.7% rated Aa and 19.1% rated A). For a description of the meaning of
the applicable rating symbols as published by the rating agencies, see Part B,
"Bond Ratings." It should be emphasized, however, that the ratings of the
rating agencies represent their opinions as to the quality of the Bonds which
they undertake to rate, and that these ratings are general and are not absolute
standards of quality and may change from time to time.
None of the Bonds in the Maryland Trust were acquired from the Sponsor as
sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
NEW YORK TRUST 140
The Portfolio of the New York Trust contains 11 issues of Bonds of issuers
located in the State of New York and the Commonwealth of Puerto Rico. Of the
Bonds in this Trust, two were issued by an issuer in the Commonwealth of Puerto
Rico (representing 12.9%* of the Bonds in the Trust) and were issued to finance
highway facilities. One of the issues (representing approximately 17.8% of the
Bonds in the Trust) is a general obligation of a governmental entity and is
backed by the taxing power of that entity. The remaining issues are payable
from the income of specific projects or authorities and are not supported by
the issuer's power to levy taxes. Although income to pay such Bonds may be
derived from more than one source, the primary sources of such income and the
percentage of the Bonds in this Trust deriving income from such sources are as
follows: hospital and health care facilities: 8.1%; housing facilities: 18.6%;
transportation facilities: 3.2%; pollution control facilities: 7.5%;
educational facilities: 10.2%; special tax: 15.5%; lease rental payments: 6.2%.
This Trust is not considered to be concentrated in any particular category of
Bonds.+ (See Part B, "Tax Exempt Securities Trust--Risk Factors" for a brief
summary of additional considerations relating to certain of these issues).
Seven Bonds in this Trust have been issued with an "original issue discount."
(See Part B, "Taxes.") The average life to maturity of the Bonds in the New
York Trust is 27.0 years.
As of the Date of Deposit, 60.6% of the Bonds in this Trust are rated by
Standard & Poor's (8.1% rated AA and 52.5% rated A); 29.2% are rated by Moody's
(7.5% rated Aa and 21.7% rated A). 10.2% are rated A by Fitch. For a
description of the meaning of the applicable rating symbols as published by the
rating agencies, see Part B, "Bond Ratings." It should be emphasized, however,
that the ratings of the rating agencies represent their opinions as to the
quality of the Bonds which they undertake to rate, and that these ratings are
general and are not absolute standards of quality and may change from time to
time.
None of the Bonds in the New York Trust were acquired from the Sponsor as
sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
- -------
* Percentages computed on the basis of the aggregate offering price of the
Bonds in the Trust on the Date of Deposit.
+ A Trust is considered to be "concentrated" in a particular category when the
Bonds in that category constitute 25% or more of the aggregate offering price
of the Bonds in the Trust.
A-5
<PAGE>
PENNSYLVANIA TRUST 113
The Portfolio of the Pennsylvania Trust contains 9 issues of Bonds of
issuers located in the State of Pennsylvania. All of the issues are payable
from the income of specific projects or authorities and are not supported by
the issuer's power to levy taxes. Although income to pay such Bonds may be
derived from more than one source, the primary sources of such income and the
percentage* of the Bonds in this Trust deriving income from such sources are
as follows: hospital and health care facilities: 46.7%; pollution control
facilities: 9.3%; educational facilities: 25.9%; gas facilities: 9.3%; special
tax: 8.8%. The Trust is considered to be concentrated in hospital and health
care facilities and educational facilities issues.+ (See Part B, "Tax Exempt
Securities Trust--Risk Factors" for a brief summary of additional
considerations relating to certain of these issues.) 53.3% of the Bonds in
this Trust are insured as to timely payment of principal and interest by
certain insurance companies (Connie Lee, 16.5%; FSA, 9.3% and MBIA, 27.5%)
(see Part B, "Tax Exempt Securities Trust--Risk Factors--Insurance"). Seven
Bonds in this Trust have been issued with an "original issue discount." (See
Part B, "Taxes.") The average life to maturity of the Bonds in the
Pennsylvania Trust is 25.9 years.
As of the Date of Deposit, 90.4% of the Bonds in this Trust are rated by
Standard & Poor's (53.3% rated AAA and 37.1% rated A); 9.6% are rated Aa by
Moody's. For a description of the meaning of the applicable rating symbols as
published by the rating agencies, see Part B, "Bond Ratings." It should be
emphasized, however, that the ratings of the rating agencies represent their
opinions as to the quality of the Bonds which they undertake to rate, and that
these ratings are general and are not absolute standards of quality and may
change from time to time.
18.7% of the Bonds in the Pennsylvania Trust were acquired from the Sponsor
as sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
- -------
* Percentages computed on the basis of the aggregate offering price of the
Bonds in the Trust on the Date of Deposit.
+ A Trust is considered to be "concentrated" in a particular category when the
Bonds in that category constitute 25% or more of the aggregate offering price
of the Bonds in the Trust.
A-6
<PAGE>
UNDERWRITING
The names and addresses of the Underwriters and the number of Units to be
sold by them are as follows:
<TABLE>
<CAPTION>
UNITS
----------------------------------------------------------------------------------------------------
NATIONAL TRUST 201 CONNECTICUT TRUST 97 MARYLAND TRUST 94 NEW YORK TRUST 140 PENNSYLVANIA TRUST 113
------------------- -------------------- ----------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C>
Smith Barney Inc. .... 4,650 2,600 1,800 2,550 2,300
1345 Avenue of the
Americas
New York, New York
10105
Robert W. Baird & Co.
Inc. ................ 100 -- -- -- --
777 East Wisconsin
Ave.
Milwaukee, Wisconsin
53202
Gruntal & Co. Incorpo-
rated................ 250 100 100 250 100
14 Wall Street
New York, New York
10005
Janney Montgomery
Scott Inc. .......... -- -- -- -- 350
1801 Market Street
Philadelphia, Pennsyl-
vania 19103
Legg Mason Wood Walk-
er, Inc. ............ 250 -- 250 -- --
111 South Calvert
Street
Baltimore, Maryland
21202
Oppenheimer & Co.,
Inc. ................ 100 -- -- 100 --
Oppenheimer tower
One World Financial
Center
New York, New York
10281
Piper Jaffray, Inc. .. 100 -- -- -- --
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota
55440
Rauscher Pierce
Refsnes, Inc. ....... 100 -- -- -- --
2500 RPR Tower
Plaza of the Americas
Dallas, Texas 75201
Roosevelt & Cross,
Inc. ................ 250 -- -- 100 --
20 Exchange Place
New York, New York
10005
Wheat First Securi-
ties, Inc. .......... 100 -- 100 -- --
901 East Byrd Street
Richmond, Virginia
23219
William R. Hough...... 100 -- -- -- --
100 Second Avenue
Suite 800
St. Petersburg, Flor-
ida 33701
------ ------ ------ ------ ------
Total................. 6,000 2,700 2,250 3,000 2,750
====== ====== ====== ====== ======
</TABLE>
A-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and Unit Holders of Tax Exempt Securities Trust,
National Trust 201, Connecticut Trust 97, Maryland Trust 94, New York Trust
140 and Pennsylvania Trust 113:
We have audited the accompanying statements of financial condition, including
the portfolios of securities, of each of the respective trusts constituting Tax
Exempt Securities Trust, National Trust 201, Connecticut Trust 97, Maryland
Trust 94, New York Trust 140 and Pennsylvania Trust 113 as of February 8, 1995.
These financial statements are the responsibility of the Trustee (see note 5 to
the statements of financial condition). Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of financial condition are
free of material misstatement. An audit of a statement of financial condition
includes examining, on a test basis, evidence supporting the amounts and
disclosures in that statement of financial condition. Our procedures included
confirmation with the Trustee of an irrevocable letter of credit deposited on
February 8, 1995 for the purchase of securities, as shown in the statements of
financial condition and portfolios of securities. An audit of a statement of
financial condition also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
statement of financial condition presentation. We believe that our audits of
the statements of financial condition provide a reasonable basis for our
opinion.
In our opinion, the statements of financial condition referred to above
present fairly, in all material respects, the financial position of each of the
respective trusts constituting Tax Exempt Securities Trust, National Trust 201,
Connecticut Trust 97, Maryland Trust 94, New York Trust 140 and Pennsylvania
Trust 113, as of February 8, 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
February 8, 1995
A-8
<PAGE>
TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, FEBRUARY 8, 1995
<TABLE>
<CAPTION>
TRUST PROPERTY
---------------------------------------------------------
NATIONAL CONNECTICUT MARYLAND NEW YORK PENNSYLVANIA
TRUST 201 TRUST 97 TRUST 94 TRUST 140 TRUST 113
---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Investment in Tax-Exempt
Securities:
Bonds represented by
purchase contracts
backed by
letter of credit (1). $5,706,865 $2,644,861 $2,077,424 $2,859,046 $2,675,393
Accrued interest through
the Date of Deposit on
underlying
bonds (1)(2)........... 63,849 31,238 14,547 34,776 40,059
---------- ---------- ---------- ---------- ----------
Total............... $5,770,714 $2,676,099 $2,091,971 $2,893,822 $2,715,452
========== ========== ========== ========== ==========
<CAPTION>
LIABILITY AND INTEREST OF UNIT HOLDERS
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Liability:
Accrued interest
through the Date of
Deposit on
underlying bonds
(1)(2)............... $ 63,849 $ 31,238 $ 14,547 $ 34,776 $ 40,059
---------- ---------- ---------- ---------- ----------
Interest of Unit Hold-
ers:
Units of fractional
undivided interest
outstanding (National
Trust 201: 6,000;
Connecticut Trust 97:
2,700; Maryland Trust
94: 2,250; New York
Trust 140: 3,000;
Pennsylvania Trust
113: 2,750)
Cost to investors
(3)................. 5,988,328 2,775,306 2,179,883 3,000,054 2,807,343
Less--Gross under-
writing commission
(4)................. 281,463 130,445 102,459 141,008 131,950
---------- ---------- ---------- ---------- ----------
Net amount applicable
to investors........ 5,706,865 2,644,861 2,077,424 2,859,046 2,675,393
---------- ---------- ---------- ---------- ----------
Total................. $5,770,714 $2,676,099 $2,091,971 $2,893,822 $2,715,452
========== ========== ========== ========== ==========
</TABLE>
(1) Aggregate cost to each Trust of the Bonds listed under the Portfolios of
Securities on the immediately following pages is based on offering prices
as of 1:00 P.M. on February 8, 1995, the Date of Deposit, determined by the
Evaluator on the basis set forth in Part B, "Public Offering--Offering
Price." Morgan Guaranty Trust Company of New York issued an irrevocable
letter of credit in the aggregate principal amount of $20,000,000 which was
deposited with the Trustee for the purchase of $16,700,000 principal amount
of Bonds pursuant to contracts to purchase such Bonds at the Sponsor's
aggregate cost of $15,963,589 plus $184,469 representing accrued interest
thereon through the Date of Deposit.
(2) The Indenture provides that the Trustee will advance amounts equal to the
accrued interest on the underlying securities of each Trust (net of accrued
expenses) through the Date of Deposit and that such amounts will be
distributed to the Sponsor as Unit holder of record on such date, as set
forth in Part B, "Rights of Unit Holders--Distribution of Interest and
Principal."
(3) Aggregate public offering price (exclusive of interest) computed on 6,000,
2,700, 2,250, 3,000 and 2,750 Units of National Trust, Connecticut Trust,
Maryland Trust, New York Trust and Pennsylvania Trust, respectively, on the
basis set forth in Part B, "Public Offering--Offering Price."
(4) Sales charge of 4.70% computed on 6,000, 2,700, 2,250, 3,000 and 2,750
Units of National Trust, Connecticut Trust, Maryland Trust, New York Trust
and Pennsylvania Trust, respectively, on the basis set forth in Part B,
"Public Offering--Offering Price."
(5) The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of each
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide reasonable
assurance as to the integrity and reliability of, financial reporting of
each Trust. The Trustee is also responsible for all estimates and accruals
reflected in each Trust's financial statements. The Evaluator determines
the price for each underlying Bond included in each Trust's Portfolio of
Securities on the basis set forth in Part B, "Public Offering--Offering
Price."
A-9
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 201--PORTFOLIO OF SECURITIES AS OF FEBRUARY 8, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS REDEMPTION TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) PROVISIONS (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 500,000 San Bernardino County, A- 8/1/04 @ 102 $ 336,655 7.400% $ 23,750
California, Certificates SF 8/1/27 @ 100
of Participation,
Medical Center Financing
Project, 4.75% Due
8/1/2028
2. 350,000 Hospital Authority of A* 7/1/03 @ 102 323,711 6.800 21,700
Savannah, Georgia, SF 7/1/13 @ 100
Revenue Bonds, Saint
Joseph's Hospital
Project, 6.20% Due
7/1/2023
3. 195,000 Chicago, Illinois, AA 7/1/02 @ 102 196,322 6.750 13,357
Metropolitan Housing SF 1/1/04 @ 100
Development Corporation,
Housing Development
Revenue Refunding Bonds,
FHA-Insured Mortgage
Loans, Section 8
Assisted Projects, 6.85%
Due 7/1/2022
4. 500,000 Medical Center A- 12/1/04 @ 102 443,400 6.800 29,500
Educational Building SF 12/1/15 @ 100
Corporation Revenue
Bonds, Mississippi,
University of
Mississippi Medical
Center Project, 5.90%
Due 12/1/2023
5. 270,000 North Carolina Municipal A 1/1/03 @ 102 259,114 6.600 16,875
Power Agency, Catawba SF 1/1/16 @ 100
Electric Revenue Bonds,
6.25% Due 1/1/2017
6. 500,000 North Carolina Eastern A- 1/1/03 @ 100 421,290 6.800 27,500
Municipal Power Agency, SF 1/1/19 @ 100
Power System Revenue
Refunding Bonds, 5.50%
Due 1/1/2021
7. 500,000 Cleveland-Rock Glen A* 6/1/06 @ 103 515,930 6.650 35,000
Housing Assistance SF 6/1/06 @ 100
Corporation, Ohio,
Multifamily Housing
Revenue and Revenue
Refunding Bonds,
Ambleside Apartments,
Section 8 Assisted
Project, 7.00% Due
6/1/2018
8. 500,000 Southern Oklahoma A 12/1/02 @ 102 500,000 6.699 33,500
Memorial Hospital SF 12/1/13 @ 100
Authority, Ardmore,
Oklahoma, Hospital
Revenue Bonds, 6.70% Due
12/1/2022
9. 275,000 Allegheny County, A- 10/1/01 @ 100 281,152 6.700 19,594
Pennsylvania,
Development Authority,
Hospital Revenue Bonds,
St. Margaret Memorial
Hospital, 7.125% Due
10/1/2021
10. 295,000 Lehigh County, A 7/15/02 @ 102 284,150 6.900 19,470
Pennsylvania, General SF 7/15/11 @ 100
Purpose Authority,
Hospital Revenue Bonds,
Muhlenberg Hospital
Center, 6.60% Due
7/15/2022
11. 500,000 Texas National Research, A- 12/1/01 @ 102 513,080 6.700 35,500
Laboratory Commission SF 12/1/13 @ 100
Financing Corporation,
Lease Revenue Bonds,
Superconducting Super
Collider Project, 7.10%
Due 12/1/2021
12. 500,000 Austin, Texas, Housing A 4/1/04 @ 102 500,000 6.749 33,750
Finance Corporation, SF 4/1/11 @ 100
Multifamily Housing
Revenue Refunding Bonds,
Stassney Woods
Apartments Project,
6.75% Due 4/1/2019
13. 400,000 DeSoto, Texas, Housing A 2/1/05 @ 102 400,000 7.000 28,000
Finance Corporation, SF 2/1/06 @ 100
Multifamily Housing
Revenue Bonds, Windsor
Housing Foundation
Project, 7.00% Due
2/1/2025
14. 465,000 Washington Health Care A- 1/1/01 @ 102 479,006 6.750 33,713
Facilities Authority SF 1/1/10 @ 100
Revenue Bonds, Yakima
Valley Memorial Hospital
Association, Yakima,
7.25% Due 1/1/2021
15. 250,000 District of Columbia, A+ 4/1/99 @ 102 253,055 6.900 17,875
University Revenue SF 4/1/13 @ 100
Bonds, Georgetown
University Issue, 7.15%
Due 4/1/2021
---------- ---------- --------
$6,000,000 $5,706,865 $389,084
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-10
<PAGE>
TAX EXEMPT SECURITIES TRUST
CONNECTICUT TRUST 97--PORTFOLIO OF SECURITIES AS OF FEBRUARY 8, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS REDEMPTION TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) PROVISIONS (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ----------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 300,000 State of Connecticut AAA 7/1/04 @ 101.50 $ 291,810 6.200% $ 18,000
Health and Educational SF 7/1/16 @ 100
Facilities Authority
Revenue Bonds, The
Loomis Chaffee School
Issue, MBIA Insured,
6.00% Due 7/1/2025
2. 500,000 State of Connecticut AA- 11/1/04 @ 102 529,515 6.400 35,625
Health and Educational SF 11/1/15 @ 100
Facilities Authority
Revenue Bonds, Nursing
Home Program Issue,
AHF/Hartford, Inc.
Project, 7.125% Due
11/1/2024
3. 500,000 State of Connecticut AA- 11/1/04 @ 102 484,185 6.500 31,250
Health and Educational SF 11/1/15 @ 100
Facilities Authority
Revenue Bonds, Nursing
Home Program Issue,
Sharon Health Care
Project, 6.25% Due
11/1/2021
4. 250,000 State of Connecticut A- 7/1/02 @ 102 246,003 6.500 15,937
Health and Educational SF 7/1/13 @ 100
Facilities Authority
Revenue Bonds, The
William W. Backus
Hospital Issue, 6.375%
Due 7/1/2022
5. 250,000 Connecticut Housing AA 11/15/02 @ 102 236,742 6.300 14,625
Finance Authority, SF 11/15/06 @ 100
Housing Mortgage Finance
Program Bonds, 5.85% Due
11/15/2016
6. 140,000 Connecticut Housing AAA 5/15/04 @ 102 140,000 6.349 8,890
Finance Authority, SF 5/15/10 @ 100
Housing Mortgage Finance
Program Bonds, MBIA
Insured, 6.35% Due
5/15/2017
7. 400,000 Waterbury, Connecticut, AAA 7/1/02 @ 101 402,000 6.421 26,000
Non Profit Housing SF 1/1/08 @ 100
Corporation, Mortgage
Revenue Refunding Bonds,
FHA Insured Mortgage
Loan, Fairmont Heights
Section 8 Assisted
Project, MBIA Insured,
6.50% Due 1/1/2026
8. 110,000 Puerto Rico Highway and A 7/1/02 @ 100 101,378 6.400 6,325
Transportation SF 7/1/13 @ 100
Authority, Highway
Revenue Refunding Bonds,
5.75% Due 7/1/2018
9. 250,000 Puerto Rico Industrial A2* 12/1/03 @ 103 213,228 6.300 12,750
Medical, Educational and
Environmental Pollution
Control Facilities
Financing Authority
Revenue Bonds, American
Home Products
Corporation, 5.10% Due
12/1/2018
---------- ---------- --------
$2,700,000 $2,644,861 $169,402
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-11
<PAGE>
TAX EXEMPT SECURITIES TRUST
MARYLAND TRUST 94--PORTFOLIO OF SECURITIES AS OF FEBRUARY 8, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 125,000 Maryland Health and AAA 7/1/03 @ 102 $ 119,224 6.150% $ 7,188
Higher Educational SF 7/1/09 @ 100
Facilities Authority,
Project and Refunding
Revenue Bonds, Mercy
Medical Center Issue,
AMBAC Insured, 5.75% Due
7/1/2015
2. 475,000 Maryland Health and A 7/1/03 @ 102 426,336 6.600 27,312
Higher Educational SF 7/1/14 @ 100
Facilities Authority
Revenue Bonds, Good
Samaritan Hospital
Issue, 5.75% Due
7/1/2019
3. 100,000 Maryland Health and A 7/1/03 @ 102 79,585 6.600 5,000
Higher Educational SF 7/1/13 @ 100
Facilities Authority,
Project and Refunding
Revenue Bonds, Peninsula
Regional Medical Issue,
5.00% Due 7/1/2023
4. 200,000 Community Development Aa* 5/15/03 @ 102 201,824 6.500 13,250
Administration, SF 5/15/14 @ 100
Department of Housing
and Community
Development, State of
Maryland, Multi-Family
Housing Revenue Bonds,
6.625% Due 5/15/2023
5. 500,000 Prince George's County, A* 7/1/04 @ 102 397,185 6.950 26,500
Maryland, Project and SF 7/1/15 @ 100
Refunding Revenue Bonds,
Dimensions Health
Corporation Issue, 5.30%
Due 7/1/2024
6. 250,000 Housing Authority of AAA 12/20/04 @ 102 254,065 6.500 16,750
Prince George's County, SF 6/20/11 @ 100
Maryland, Mortgage
Revenue Refunding Bonds,
GNMA Collateralized-
Riverview Terrace
Apartments Project,
6.70% Due 6/20/2020
7. 250,000 Housing Authority of AAA 6/20/03 @ 102 241,260 6.250 15,000
Prince George's County, SF 6/20/14 @ 100
Maryland, Mortgage
Revenue Refunding Bonds,
GNMA Collateralized-
Timber Ridge-Cypress
Creek Apartments
Project, 6.00% Due
6/20/2028
8. 350,000 Puerto Rico Highway and A 7/1/02 @ 101.50 357,945 6.300 23,187
Transportation SF 7/1/13 @ 100
Authority, Highway
Revenue Refunding Bonds,
6.625% Due 7/1/2018
---------- ---------- --------
$2,250,000 $2,077,424 $134,187
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-12
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW YORK TRUST 140--PORTFOLIO OF SECURITIES AS OF FEBRUARY 8, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 500,000 The City of New York, A- 8/15/01 @ 100 $ 507,500 6.959% $ 36,250
General Obligation SF 8/15/16 @ 100
Bonds, 7.25% Due
8/15/2024
2. 250,000 New York State Energy Aa3* 10/1/03 @ 102 214,073 6.400 13,125
Research and Development
Authority, Facilities
Refunding Revenue Bonds,
Consolidated Edison
Company of New York,
Inc. Project, 5.25% Due
8/15/2020
3. 250,000 New York State Medical AA 2/15/03 @ 101.50 232,657 6.600 15,250
Care Facilities Finance
Agency, Hospital and
Nursing Insured Mortgage
Revenue Bonds, 6.10% Due
2/15/2033
4. 100,000 New York State Thruway A 1/1/02 @ 102 93,245 6.300 5,750
Authority, General SF 1/1/13 @ 100
Revenue Bonds, 5.75% Due
1/1/2019
5. 185,000 Dormitory Authority of A** 5/15/00 @ 100 174,170 6.500 11,100
the State of New York,
State University
Educational Facilities
Revenue Bonds, 6.00% Due
5/15/2017
6. 130,000 Dormitory Authority of A** 7/1/04 @ 102 116,947 6.500 7,410
the State of New York, SF 7/1/15 @ 100
Revenue Bonds, Upstate
Community Colleges,
5.70% Due 7/1/2021
7. 500,000 Rochester Housing A- 12/1/05 @ 103 530,900 6.993 38,500
Authority, New York, SF 1/1/06 @ 100
Section 8 Assisted
Mortgage Revenue Bonds,
Crossroads Apartments
Project, 7.70% Due
1/1/2017
8. 500,000 34th Street Partnership, A1* 1/1/03 @ 102 441,780 6.400 27,500
Inc., New York, 34th SF 1/1/15 @ 100
Street Business
Improvement District,
Capital Improvement
Bonds, 5.50% Due
1/1/2023
9. 185,000 United Nations A* 7/1/03 @ 102 177,432 6.300 11,100
Development Corporation, SF 7/1/13 @ 100
New York, Refunding
Bonds, 6.00% Due
7/1/2026
10. 150,000 Puerto Rico Highway and A 7/1/02 @ 101.50 153,405 6.300 9,937
Transportation SF 7/1/13 @ 100
Authority, Highway
Revenue Refunding Bonds,
6.625% Due 7/1/2018
11. 250,000 Puerto Rico Highway and A 7/1/03 @ 101.50 216,937 6.300 13,125
Transportation SF 7/1/18 @ 100
Authority, Highway
Revenue Refunding Bonds,
5.25% Due 7/1/2020
---------- ---------- --------
$3,000,000 $2,859,046 $189,047
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-13
<PAGE>
TAX EXEMPT SECURITIES TRUST
PENNSYLVANIA TRUST 113--PORTFOLIO OF SECURITIES AS OF FEBRUARY 8, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 500,000 Pennsylvania Higher AAA 12/1/03 @ 102 $ 440,500 6.350% $ 26,876
Educational Facilities SF 12/1/13 @ 100
Authority, Commonwealth
of Pennsylvania,
Philadelphia College of
Osteopathic Medicine
Revenue Bonds, Connie
Lee Insured, 5.375% Due
12/1/2018
2. 250,000 Pennsylvania AAA 6/15/03 @ 100 234,135 6.150 14,000
Intergovernmental SF 6/15/10 @ 100
Cooperation Authority,
Special Tax Revenue
Bonds, City of
Philadelphia Funding
Program, MBIA Insured,
5.60% Due 6/15/2015
3. 250,000 Allegheny County, A- 10/1/01 @ 100 255,593 6.700 17,812
Pennsylvania,
Development Authority,
Hospital Revenue Bonds,
St. Margaret Memorial
Hospital, 7.125% Due
10/1/2021
4. 295,000 Berks County, A+ 10/1/02 @ 100 298,015 6.700 20,281
Pennsylvania, Municipal SF 10/1/06 @ 100
Authority Revenue Bonds,
The Highlands at
Wyomissing Project,
6.875% Due 10/1/2017
5. 250,000 Deer Lakes School AAA 1/15/04 @ 100 252,517 6.300 16,125
District, Allegheny
County, Pennsylvania,
General Obligation
Bonds, MBIA Insured,
6.45% Due 1/15/2019
6. 455,000 Lehigh County, A 7/15/02 @ 102 438,265 6.900 30,030
Pennsylvania, General SF 7/15/11 @ 100
Purpose Authority,
Hospital Revenue Bonds,
Muhlenberg Hospital
Center, 6.60% Due
7/15/2022
7. 250,000 Lehigh County, AAA 9/1/04 @ 102 250,000 6.400 16,000
Pennsylvania, Industrial
Development Authority,
Pollution Control
Revenue Refunding Bonds,
Pennsylvania Power &
Light Company Project,
MBIA Insured, 6.40% Due
9/1/2029
8. 250,000 City of Philadelphia, AAA 7/1/03 @ 102 250,000 6.374 15,937
Pennsylvania, Gas Works SF 7/1/09 @ 100
Revenue Bonds, FSA
Insured, 6.375% Due
7/1/2014
9. 250,000 The Hospital and Higher Aa* 8/15/01 @ 102 256,368 6.850 18,125
Education Facilities SF 2/15/02 @ 100
Authority of
Philadelphia,
Pennsylvania, Refunding
Revenue Bonds, Saint
Agnes Medical Center
Project, FHA Insured
Mortgage, 7.25% Due
8/15/2031
---------- ---------- --------
$2,750,000 $2,675,393 $175,186
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-14
<PAGE>
NOTES TO PORTFOLIOS OF SECURITIES
(1)For a description of the meaning of the applicable rating symbols as
published by Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., Moody's Investors Service(*) and Fitch Investor Services, Inc.(**) and
Duff & Phelps Credit Co. (***), see Part B, "Bond Ratings".
(2) There is shown under this heading the year in which each issue of Bonds
initially is redeemable and the redemption price for that year; unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter, but not below par. "SF" indicates a sinking fund has been
or will be established with respect to an issue of Bonds. The prices at
which Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to a Trust. Certain Bonds in a Portfolio, including Bonds listed as
not being subject to redemption provisions, may be redeemed in whole or in
part other than by operation of the stated redemption or sinking fund
provision under certain unusual or extraordinary circumstances specified in
the instruments setting forth the terms and provisions of such Bonds. For
example, see discussion of obligations of housing authorities in Part B,
"Tax Exempt Securities Trust--Portfolio."
(3) Contracts to purchase Bonds were entered into during the period October 8,
1993, through February 8, 1995, with the final settlement date on February
16, 1995. The Profit to the Sponsor on Deposit totals $104,782, $24,338,
$26,357, $43,181 and $32,052 for the National Trust, Connecticut Trust,
Maryland Trust, New York Trust and Pennsylvania Trust, respectively.
(4) Evaluation of the Bonds by the Evaluator is made on the basis of current
offering prices for the Bonds. The current offering prices of the Bonds are
greater than the current bid prices of the Bonds. The Redemption Price per
Unit and the public offering price of the Units in the secondary market are
determined on the basis of the current bid prices of the Bonds. (See Part B,
"Public Offering--Offering Price" and "Rights of Unit Holders--Redemption of
Units.") Yield of Bonds was computed on the basis of offering prices on the
date of deposit. The aggregate bid price of the Bonds in the National Trust,
Connecticut Trust, Maryland Trust, New York Trust and Pennsylvania Trust on
February 8, 1995, was $5,682,865, $2,634,061, $2,068,424, $2,847,046 and
$2,664,393, respectively.
A-15
<PAGE>
PROSPECTUS--PART B:
- --------------------------------------------------------------------------------
NOTE THAT PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED
BY PART A.
- --------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST
THE TRUSTS
Each Trust is one of a series of similar but separate unit investment trusts
created under the laws of the State of New York by a Trust Indenture and
Agreement and related Reference Trust Agreement dated the Date of Deposit
(collectively, the "Trust Agreement"), of Smith Barney Inc., as Sponsor, United
States Trust Company of New York, as Trustee, and J.J. Kenny Co., Inc., as
Evaluator. Each Trust containing Bonds of a State for which such Trust is named
(a "State Trust") and each National Trust, Selected Term Trust, Long-
Intermediate Term Trust, Intermediate Term Trust, Short-Intermediate Term Trust
and Short Term Trust are referred to herein as the "Trust" or "Trusts," unless
the context requires otherwise. On the Date of Deposit, the Sponsor deposited
contracts and funds (represented by a certified check or checks and/or an
irrevocable letter or letters of credit, issued by a major commercial bank) for
the purchase of certain interest-bearing obligations (the "Bonds") and/or Units
of preceding Series of Tax Exempt Securities Trust (such Bonds and Units of
preceding Series of Tax Exempt Securities Trust, if any, (the "Deposited
Units") being referred to herein collectively as the "Securities"). The Trustee
thereafter delivered to the Sponsor registered certificates of beneficial
interest (the "Certificates") representing the units (the "Units") comprising
the entire ownership of each Trust, which Units are being offered hereby.
References to multiple Trusts in Part B herein should be read as references to
a single Trust if Part A indicates the creation of only one Trust.
Notwithstanding the availability of the above-mentioned certified check or
checks and/or irrevocable letter or letters of credit, it is expected that the
Sponsor will pay for the Bonds as the contracts for their purchase become due.
A substantial portion of such contracts have not become due by the date of this
Prospectus. To the extent Units are sold prior to the settlement of such
contracts, the Sponsor will receive the purchase price on such Units prior to
the time at which they pay for Bonds pursuant to such contracts and have the
use of such funds during this period.
OBJECTIVES
The objectives of a Trust are tax-exempt income and conservation of capital
through an investment in a diversified portfolio of municipal bonds. There is,
of course, no guarantee that a Trust's objectives will be achieved since the
payment of interest and the preservation of principal are dependent upon the
continued ability of the issuers of the bonds to meet such obligations.
Subsequent to the Date of Deposit, the ratings of the Bonds set forth in Part
A--"Portfolio of Securities" may decline due to, among other factors, a decline
in creditworthiness of the issuer of said Bonds.
PORTFOLIO
The following factors, among others, were considered in selecting the Bonds
for each Trust: (1) the Bonds are obligations of the states, counties,
territories or municipalities of the United States and authorities or political
subdivisions thereof, so that the interest on them will, in the opinion of
recognized bond counsel to the issuing governmental authorities, be exempt from
Federal tax under existing law to the extent described in "Taxes", (2) all the
Bonds deposited in a State Trust are obligations of the State for which such
Trust is named or of the counties, territories or municipalities of such State,
and authorities or political subdivisions thereof, or of the Territory of Guam
or the Commonwealth of Puerto Rico, so that the interest on them will, in the
opinion of recognized bond counsel to the issuing governmental authorities, be
exempt from Federal income tax under existing law to the extent described in
"Taxes" and from state income taxes in the state for which such State Trust is
named to the extent described in Part C, (3) the Bonds were chosen in part on
the basis of their respective maturity dates, (4) the Bonds are diversified as
to purpose of issue and location of issuer, except in the case of a State Trust
where the Bonds are diversified only as to purpose of issue, and (5) in the
opinion of the Sponsor, the Bonds are fairly valued relative to other bonds of
comparable quality and maturity.
The Bonds in the Portfolio of a Trust were chosen in part on the basis of
their respective maturity dates. The Bonds in each Trust will have a dollar-
weighted average portfolio maturity as designated in Part A--"Portfolio Summary
as of Date of Deposit." For the actual maturity date of each of the Bonds
contained in a Trust, which date may be earlier or later than the dollar-
weighted average portfolio maturity of the Trust, see Part A, "Portfolio of
Securities." A sale or other disposition of a Bond by the Trust prior to the
maturity of such Bond may be at a price which results in a loss to the Trust.
The inability of an issuer to pay the principal amount due upon the maturity of
a Bond would result in a loss to the Trust.
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In the event that any contract for the purchase of any Bond fails, the
Sponsor is authorized under the Trust Agreement, subject to the conditions set
forth below, to instruct the Trustee to acquire other securities (the
"Replacement Bonds") for inclusion in the Portfolio of the affected Trust. Any
Replacement Bonds must be deposited not later than the earlier of (i) the first
monthly Distribution Date of the Trust and (ii) 90 days after such Trust was
established. The cost and aggregate principal amount of a Replacement Bond may
not exceed the cost and aggregate principal amount of the Bond which it
replaces. In addition, a Replacement Bond must (1) be a tax-exempt bond; (2)
have a fixed maturity or disposition date comparable to the Bond it replaces;
(3) be purchased at a price that results in a yield to maturity and in a
current return, in each case as of the execution and delivery of the Trust
Agreement, which is approximately equivalent to the yield to maturity and
current return of the Bond which it replaces; (4) be purchased within twenty
days after delivery of notice of the failed contracts; and (5) be rated in a
category A or better by Standard & Poor's, Moody's, Fitch, or Duff & Phelps.
Whenever a Replacement Bond has been acquired for a Trust, the Trustee shall,
within five days thereafter, notify all Unit holders of such Trust of the
acquisition of the Replacement Bond.
In the event that a contract to purchase Bonds fails and Replacement Bonds
are not acquired, the Trustee will, not later than the second monthly
Distribution Date, distribute to Unit holders the funds attributable to the
failed contract. The Sponsor will, in such a case, refund the sales charge
applicable to the failed contract. If less than all the funds attributable to a
failed contract are applied to purchase Replacement Bonds, the remaining moneys
will be distributed to Unit holders not later than the second monthly
Distribution Date. Moreover, the failed contract will reduce the Estimated Net
Annual Income per Unit, and may lower the Estimated Current Return and
Estimated Long-Term Return.
RISK FACTORS
Certain Bonds in a Trust may have been purchased by the Sponsor on a "when,
as and if issued" basis; that is, they had not yet been issued by their
governmental entity on the Date of Deposit (although such governmental entity
had committed to issue such Bonds). Contracts relating to such "when, as and if
issued" Bonds are not expected to be settled by the first settlement date for
Units. In the case of these and/or certain other Bonds, the delivery of the
Bonds may be delayed ("delayed delivery") or may not occur. Unit holders who
purchased their Units of a Trust prior to the date such Bonds are actually
delivered to the Trustee may have to make a downward adjustment in the tax
basis of their Units for interest accruing on such "when, as and if issued" or
"delayed delivery" Bonds during the interval between their purchase of Units
and delivery of such Bonds, since the Trust and the Unit holders will not be
reimbursing the Sponsor for interest accruing on such "when, as and if issued"
or "delayed delivery" Bonds during the period between the settlement date for
the Units and the delivery of such Bonds into the Trust. (See "Taxes.") Such
adjustment has been taken into account in computing the Estimated Current
Return and Estimated Long-Term Return set forth herein, which is slightly lower
than Unit holders may receive after the first year. (See Part A, "Summary of
Essential Information.") To the extent that the delivery of such Bonds is
delayed beyond their respective expected delivery dates, the Estimated Current
Return and Estimated Long-Term Return for the first year may be lower than
indicated in the "Summary of Essential Information" in Part A.
Most of the Bonds in the Portfolio of a Trust are subject to redemption prior
to their stated maturity date pursuant to sinking fund or call provisions. (See
Part A--"Portfolio Summary as of Date of Deposit" for information relating to
the particular Trust described therein.) In general, a call or redemption
provision is more likely to be exercised when the offering price valuation of a
bond is higher than its call or redemption price, as it might be in periods of
declining interest rates, than when such price valuation is less than the
bond's call or redemption price. To the extent that a Bond was deposited in a
Trust at a price higher than the price at which it is redeemable, redemption
will result in a loss of capital when compared with the original public
offering price of the Units. Conversely, to the extent that a Bond was acquired
at a price lower than the redemption price, redemption will result in an
increase in capital when compared with the original public offering price of
the Units. Monthly distributions will generally be reduced by the amount of the
income which would otherwise have been paid with respect to redeemed bonds. The
Estimated Current Return and Estimated Long-Term Return of the Units may be
affected by such redemptions. Each Portfolio of Securities in Part A contains a
listing of the sinking fund and call provisions, if any, with respect to each
of the Bonds in a Trust. Because certain of the Bonds may from time to time
under certain circumstances be sold or redeemed or will mature in accordance
with their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that a Trust will
retain for any length of time its present size and composition. NEITHER THE
SPONSOR NOR THE TRUSTEE SHALL BE LIABLE IN ANY WAY FOR ANY DEFAULT, FAILURE OR
DEFECT IN ANY BOND.
The Portfolio of the Trust may consist of some Bonds whose current market
values were below face value on the Date of Deposit. A primary reason for the
market value of such Bonds being less than face value at maturity is that the
interest coupons of such Bonds are at lower rates than the current market
interest rate for comparably rated Bonds, even though at the time of the
issuance of such Bonds the interest coupons thereon represented then prevailing
interest rates on comparably rated Bonds then newly issued. Bonds selling at
market discounts tend to increase in market value as they approach maturity
when the principal amount is payable. A market discount tax-exempt Bond held to
maturity will have a larger portion of its total return in the form of taxable
ordinary income and less in the form of tax-exempt income than a comparable
Bond bearing interest at current market rates. Under the provisions of the
Internal Revenue
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Code in effect on the date of this Prospectus any ordinary income attributable
to market discount will be taxable but will not be realized until maturity,
redemption or sale of the Bonds or Units.
As set forth under "Portfolio Summary as of Date of Deposit", the Trust may
contain or be concentrated in one or more of the classifications of Bonds
referred to below. A Trust is considered to be "concentrated" in a particular
category when the Bonds in that category constitute 25% or more of the
aggregate value of the Portfolio. (See Part A--"Portfolio Summary as of Date of
Deposit" for information relating to the particular Trust described therein.)
An investment in Units of the Trust should be made with an understanding of the
risks that these investments may entail, certain of which are described below.
GENERAL OBLIGATION BONDS. Certain of the Bonds in the Portfolio may be
general obligations of a governmental entity that are secured by the taxing
power of the entity. General obligation bonds are backed by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. However, the taxing power of any governmental entity may be limited
by provisions of state constitutions or laws and an entity's credit will depend
on many factors, including an erosion of the tax base due to population
declines, natural disasters, declines in the state's industrial base or
inability to attract new industries, economic limits on the ability to tax
without eroding the tax base and the extent to which the entity relies on
Federal or state aid, access to capital markets or other factors beyond the
entity's control.
As a result of the recent recession's adverse impact upon both their revenues
and expenditures, as well as other factors, many state and local governments
are confronting deficits and potential deficits which are the most severe in
recent years. Many issuers are facing highly difficult choices about
significant tax increases and/or spending reductions in order to restore
budgetary balance. Failure to implement these actions on a timely basis could
force the issuers to depend upon market access to finance deficits or cash flow
needs.
In addition, certain of the Bonds in the Trust may be obligations of issuers
(including California issuers) who rely in whole or in part on ad valorem real
property taxes as a source of revenue. Certain proposals, in the form of state
legislative proposals or voter initiatives, to limit ad valorem real property
taxes have been introduced in various states, and an amendment to the
constitution of the State of California, providing for strict limitations on ad
valorem real property taxes, has had a significant impact on the taxing powers
of local governments and on the financial conditions of school districts and
local governments in California. It is not possible at this time to predict the
final impact of such measures, or of similar future legislative or
constitutional measures, on school districts and local governments or on their
abilities to make future payments on their outstanding debt obligations.
INDUSTRIAL DEVELOPMENT REVENUE BONDS ("IDRS"). IDRs, including pollution
control revenue bonds, are tax-exempt securities issued by states,
municipalities, public authorities or similar entities ("issuers") to finance
the cost of acquiring, constructing or improving various projects, including
pollution control facilities and certain industrial development facilities.
These projects are usually operated by corporate entities. IDRs are not general
obligations of governmental entities backed by their taxing power. Issuers are
only obligated to pay amounts due on the IDRs to the extent that funds are
available from the unexpended proceeds of the IDRs or receipts or revenues of
the issuer under arrangements between the issuer and the corporate operator of
a project. These arrangements may be in the form of a lease, installment sale
agreement, conditional sale agreement or loan agreement, but in each case the
payments to the issuer are designed to be sufficient to meet the payments of
amounts due on the IDRs.
IDRs are generally issued under bond resolutions, agreements or trust
indentures pursuant to which the revenues and receipts payable under the
issuer's arrangements with the corporate operator of a particular project have
been assigned and pledged to the holders of the IDRs or a trustee for the
benefit of the holders of the IDRs. In certain cases, a mortgage on the
underlying project has been assigned to the holders of the IDRs or a trustee as
additional security for the IDRs. In addition, IDRs are frequently directly
guaranteed by the corporate operator of the project or by another affiliated
company. Regardless of the structure, payment of IDRs is solely dependent upon
the creditworthiness of the corporate operator of the project or corporate
guarantor. Corporate operators or guarantors that are industrial companies may
be affected by many factors which may have an adverse impact on the credit
quality of the particular company or industry. These include cyclicality of
revenues and earnings, regulatory and environmental restrictions, litigation
resulting from accidents or environmentally-caused illnesses, extensive
competition (including that of low-cost foreign companies), unfunded pension
fund liabilities or off-balance sheet items, and financial deterioration
resulting from leveraged buy-outs or takeovers. However, certain of the IDRs in
the Portfolio may be additionally insured or secured by letters of credit
issued by banks or otherwise guaranteed or secured to cover amounts due on the
IDRs in the event of default in payment by an issuer.
HOSPITAL AND HEALTH CARE FACILITY BONDS. The ability of hospitals and other
health care facilities to meet their obligations with respect to revenue bonds
issued on their behalf is dependent on various factors, including the level of
payments received from private third-party payors and government programs and
the cost of providing health care services.
A significant portion of the revenues of hospitals and other health care
facilities is derived from private third-party payors and government programs,
including the Medicare and Medicaid programs. Both private third-party payors
and government programs have undertaken cost containment measures designed to
limit payments made to health care facilities. Furthermore, government programs
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are subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
materially decrease the rate of program payments for health care facilities.
Certain special revenue obligations (i.e., Medicare or Medicaid revenues) may
be payable subject to appropriations by state legislatures. There can be no
assurance that payments under governmental programs will remain at levels
comparable to present levels or will, in the future, be sufficient to cover the
costs allocable to patients participating in such programs. In addition, there
can be no assurance that a particular hospital or other health care facility
will continue to meet the requirements for participation in such programs.
The costs of providing health care services are subject to increase as a
result of, among other factors, changes in medical technology and increased
labor costs. In addition, health care facility construction and operation is
subject to federal, state and local regulation relating to the adequacy of
medical care, equipment, personnel, operating policies and procedures, rate-
setting, and compliance with building codes and environmental laws. Facilities
are subject to periodic inspection by governmental and other authorities to
assure continued compliance with the various standards necessary for licensing
and accreditation. These regulatory requirements are subject to change and, to
comply, it may be necessary for a hospital or other health care facility to
incur substantial capital expenditures or increased operating expenses to
effect changes in its facilities, equipment, personnel and services.
Hospitals and other health care facilities are subject to claims and legal
actions by patients and others in the ordinary course of business. Although
these claims are generally covered by insurance, there can be no assurance that
a claim will not exceed the insurance coverage of a health care facility or
that insurance coverage will be available to a facility. In addition, a
substantial increase in the cost of insurance could adversely affect the
results of operations of a hospital or other health care facility. The Clinton
Administration may impose regulations which could limit price increases for
hospitals or the level of reimbursements for third-party payors or other
measures to reduce health care costs and make health care available to more
individuals, which would reduce profits for hospitals. Some states, such as New
Jersey, have significantly changed their reimbursement systems. If a hospital
cannot adjust to the new system by reducing expenses or raising rates,
financial difficulties may arise. Also, Blue Cross has denied reimbursement for
some hospitals for services other than emergency room services. The lost volume
would reduce revenues unless replacement patients were found.
Certain hospital bonds may provide for redemption at par at any time upon the
sale by the issuer of the hospital facilities to a non-affiliated entity, if
the hospital becomes subject to ad valorem taxation, or in various other
circumstances. For example, certain hospitals may have the right to call bonds
at par if the hospital may be legally required because of the bonds to perform
procedures against specified religious principles or to disclose information
that is considered confidential or privileged. Certain FHA-insured bonds may
provide that all or a portion of these bonds, otherwise callable at a premium,
can be called at par in certain circumstances. If a hospital defaults upon a
bond obligation, the realization of Medicare and Medicaid receivables may be
uncertain and, if the bond obligation is secured by the hospital facilities,
legal restrictions on the ability to foreclose upon the facilities and the
limited alternative uses to which a hospital can be put may severely reduce its
collateral value.
The Internal Revenue Service is currently engaged in a program of intensive
audits of certain large tax-exempt hospital and health care facility
organizations. Although these audits have not yet been completed, it has been
reported that the tax-exempt status of some of these organizations may be
revoked. At this time, it is uncertain whether any of the hospital and health
care facility bonds held by the Trust will be affected by such audit
proceedings.
SINGLE FAMILY AND MULTI-FAMILY HOUSING BONDS. Multi-family housing revenue
bonds and single family mortgage revenue bonds are state and local housing
issues that have been issued to provide financing for various housing projects.
Multi-family housing revenue bonds are payable primarily from the revenues
derived from mortgage loans to housing projects for low to moderate income
families. Single-family mortgage revenue bonds are issued for the purpose of
acquiring from originating financial institutions notes secured by mortgages on
residences.
Housing obligations are not general obligations of the issuer although
certain obligations may be supported to some degree by Federal, state or local
housing subsidy programs. Budgetary constraints experienced by these programs
as well as the failure by a state or local housing issuer to satisfy the
qualifications required for coverage under these programs or any legal or
administrative determinations that the coverage of these programs is not
available to a housing issuer, probably will result in a decrease or
elimination of subsidies available for payment of amounts due on the issuer's
obligations. The ability of housing issuers to make debt service payments on
their obligations will also be affected by various economic and non-economic
developments including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income in multi-family
projects, the rate of default on mortgage loans underlying single family issues
and the ability of mortgage insurers to pay claims, employment and income
conditions prevailing in local markets, increases in construction costs, taxes,
utility costs and other operating expenses, the managerial ability of project
managers, changes in laws and governmental regulations and economic trends
generally in the localities in which the projects are situated. Occupancy of
multi-family housing projects may also be adversely affected by high rent
levels and income limitations imposed under Federal, state or local programs.
All single family mortgage revenue bonds and certain multi-family housing
revenue bonds are prepayable over the life of the underlying mortgage or
mortgage pool, and therefore the average life of housing obligations cannot be
determined. However, the average
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life of these obligations will ordinarily be less than their stated maturities.
Single-family issues are subject to mandatory redemption in whole or in part
from prepayments on underlying mortgage loans; mortgage loans are frequently
partially or completely prepaid prior to their final stated maturities as a
result of events such as declining interest rates, sale of the mortgaged
premises, default, condemnation or casualty loss. Multi-family issues are
characterized by mandatory redemption at par upon the occurrence of monetary
defaults or breaches of covenants by the project operator. Additionally,
housing obligations are generally subject to mandatory partial redemption at
par to the extent that proceeds from the sale of the obligations are not
allocated within a stated period (which may be within a year of the date of
issue). To the extent that these obligations were valued at a premium when a
Holder purchased Units, any prepayment at par would result in a loss of capital
to the Holder and, in any event, reduce the amount of income that would
otherwise have been paid to Holders.
The tax exemption for certain housing revenue bonds depends on qualification
under Section 143 of the Internal Revenue Code of 1986, as amended (the
"Code"), in the case of single family mortgage revenue bonds or Section
142(a)(7) of the Code or other provisions of Federal law in the case of certain
multi-family housing revenue bonds (including Section 8 assisted bonds). These
sections of the Code or other provisions of Federal law contain certain ongoing
requirements, including requirements relating to the cost and location of the
residences financed with the proceeds of the single family mortgage revenue
bonds and the income levels of tenants of the rental projects financed with the
proceeds of the multi-family housing revenue bonds. While the issuers of the
bonds and other parties, including the originators and servicers of the single-
family mortgages and the owners of the rental projects financed with the multi-
family housing revenue bonds, generally covenant to meet these ongoing
requirements and generally agree to institute procedures designed to ensure
that these requirements are met, there can be no assurance that these ongoing
requirements will be consistently met. The failure to meet these requirements
could cause the interest on the bonds to become taxable, possibly retroactively
to the date of issuance, thereby reducing the value of the bonds, subjecting
the Holders to unanticipated tax liabilities and possibly requiring the Trustee
to sell the bonds at reduced values. Furthermore, any failure to meet these
ongoing requirements might not constitute an event of default under the
applicable mortgage or permit the holder to accelerate payment of the bond or
require the issuer to redeem the bond. In any event, where the mortgage is
insured by the Federal Housing Administration, its consent may be required
before insurance proceeds would become payable to redeem the mortgage bonds.
POWER FACILITY BONDS. The ability of utilities to meet their obligations with
respect to revenue bonds issued on their behalf is dependent on various
factors, including the rates they may charge their customers, the demand for a
utility's services and the cost of providing those services. Utilities, in
particular investor-owned utilities, are subject to extensive regulations
relating to the rates which they may charge customers. Utilities can experience
regulatory, political and consumer resistance to rate increases. Utilities
engaged in long-term capital projects are especially sensitive to regulatory
lags in granting rate increases. Any difficulty in obtaining timely and
adequate rate increases could adversely affect a utility's results of
operations.
The demand for a utility's services is influenced by, among other factors,
competition, weather conditions and economic conditions. Electric utilities,
for example, have experienced increased competition as a result of the
availability of other energy sources, the effects of conservation on the use of
electricity, self-generation by industrial customers and the generation of
electricity by co-generators and other independent power producers. Also,
increased competition will result if federal regulators determine that
utilities must open their transmission lines to competitors. Utilities which
distribute natural gas also are subject to competition from alternative fuels,
including fuel oil, propane and coal.
The utility industry is an increasing cost business making the cost of
generating electricity more expensive and heightening its sensitivity to
regulation. A utility's costs are influenced by the utility's cost of capital,
the availability and cost of fuel and other factors. In addition, natural gas
pipeline and distribution companies have incurred increased costs as a result
of long-term natural gas purchase contracts containing "take or pay" provisions
which require that they pay for natural gas even if natural gas is not taken by
them. There can be no assurance that a utility will be able to pass on these
increased costs to customers through increased rates. Utilities incur
substantial capital expenditures for plant and equipment. In the future they
will also incur increasing capital and operating expenses to comply with
environmental legislation such as the Clean Air Act of 1990, and other energy,
licensing and other laws and regulations relating to, among other things, air
emissions, the quality of drinking water, waste water discharge, solid and
hazardous substance handling and disposal, and siting and licensing of
facilities. Environmental legislation and regulations are changing rapidly and
are the subject of current public policy debate and legislative proposals. It
is increasingly likely that some or many utilities will be subject to more
stringent environmental standards in the future that could result in
significant capital expenditures. Future legislation and regulation could
include, among other things, regulation of so-called electromagnetic fields
associated with electric transmission and distribution lines as well as
emissions of carbon dioxide and other so-called greenhouse gases associated
with the burning of fossil fuels. Compliance with these requirements may limit
a utility's operations or require substantial investments in new equipment and,
as a result, may adversely affect a utility's results of operations.
The electric utility industry in general is subject to various external
factors including (a) the effects of inflation upon the costs of operation and
construction, (b) substantially increased capital outlays and longer
construction periods for larger and more complex new
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generating units, (c) uncertainties in predicting future load requirements, (d)
increased financing requirements coupled with limited availability of capital,
(e) exposure to cancellation and penalty charges on new generating units under
construction, (f) problems of cost and availability of fuel, (g) compliance
with rapidly changing and complex environmental, safety and licensing
requirements, (h) litigation and proposed legislation designed to delay or
prevent construction of generating and other facilities, (i) the uncertain
effects of conservation on the use of electric energy, (j) uncertainties
associated with the development of a national energy policy, (k) regulatory,
political and consumer resistance to rate increases and (l) increased
competition as a result of the availability of other energy sources. These
factors may delay the construction and increase the cost of new facilities,
limit the use of, or necessitate costly modifications to, existing facilities,
impair the access of electric utilities to credit markets, or substantially
increase the cost of credit for electric generating facilities. The Sponsor
cannot predict at this time the ultimate effect of such factors on the ability
of any issuers to meet their obligations with respect to Bonds.
The National Energy Policy Act ("NEPA"), which became law in October, 1992,
makes it mandatory for a utility to permit non-utility generators of
electricity access to its transmission system for wholesale customers, thereby
increasing competition for electric utilities. NEPA also mandated demand-side
management policies to be considered by utilities. NEPA prohibits the Federal
Energy Regulatory Commission from mandating electric utilities to engage in
retail wheeling, which is competition among suppliers of electric generation to
provide electricity to retail customers (particularly industrial retail
customers) of a utility. However, under NEPA, a state can mandate retail
wheeling under certain conditions.
There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil fuels.
Congressional support for the increased regulation of air, water, and soil
contaminants is building and there are a number of pending or recently enacted
legislative proposals which may affect the electric utility industry. In
particular, on November 15, 1990, legislation was signed into law that
substantially revises the Clean Air Act (the "1990 Amendments"). The 1990
Amendments seek to improve the ambient air quality throughout the United States
by the year 2000. A main feature of the 1990 Amendments is the reduction of
sulphur dioxide and nitrogen oxide emissions caused by electric utility power
plants, particularly those fueled by coal. Under the 1990 Amendments the U.S.
Environmental Protection Agency ("EPA") must develop limits for nitrogen oxide
emissions by 1993. The sulphur dioxide reduction will be achieved in two
phases. Phase I addresses specific generating units named in the 1990
Amendments. In Phase II the total U.S. emissions will be capped at 8.9 million
tons by the year 2000. The 1990 Amendments contain provisions for allocating
allowances to power plants based on historical or calculated levels. An
allowance is defined as the authorization to emit one ton of sulphur dioxide.
The 1990 Amendments also provide for possible further regulation of toxic air
emissions from electric generating units pending the results of several federal
government studies to be conducted over the next three to four years with
respect to anticipated hazards to public health, available corrective
technologies, and mercury toxicity.
Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various
plant systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the
recovery of replacement power costs. Risks of substantial liability also arise
from the operation of nuclear facilities and from the use, handling, and
possible radioactive emissions associated with nuclear fuel. Insurance may not
cover all types or amounts of loss which may be experienced in connection with
the ownership and operation of a nuclear plant and severe financial
consequences could result from a significant accident or occurrence. The
Nuclear Regulatory Commission has promulgated regulations mandating the
establishment of funded reserves to assure financial capability for the
eventual decommissioning of licensed nuclear facilities. These funds are to be
accrued from revenues in amounts currently estimated to be sufficient to pay
for decommissioning costs.
The ability of state and local joint action power agencies to make payments
on bonds they have issued is dependent in large part on payments made to them
pursuant to power supply or similar agreements. Courts in Washington, Oregon
and Idaho have held that certain agreements between the Washington Public Power
Supply System ("WPPSS") and the WPPSS participants are unenforceable because
the participants did not have the authority to enter into the agreements. While
these decisions are not specifically applicable to agreements entered into by
public entities in other states, they may cause a reexamination of the legal
structure and economic viability of certain projects financed by joint power
agencies, which might exacerbate some of the problems referred to above and
possibly lead to legal proceedings questioning the enforceability of agreements
upon which payment of these bonds may depend.
WATER AND SEWER REVENUE BONDS. Water and sewer bonds are generally payable
from user fees. The ability of state and local water and sewer authorities to
meet their obligations may be affected by failure of municipalities to utilize
fully the facilities constructed by
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these authorities, economic or population decline and resulting decline in
revenue from user charges, rising construction and maintenance costs and delays
in construction of facilities, impact of environmental requirements, failure or
inability to raise user charges in response to increased costs, the difficulty
of obtaining or discovering new supplies of fresh water, the effect of
conservation programs and the impact of "no growth" zoning ordinances. In some
cases this ability may be affected by the continued availability of Federal and
state financial assistance and of municipal bond insurance for future bond
issues.
UNIVERSITY AND COLLEGE BONDS. The ability of universities and colleges to
meet their obligations is dependent upon various factors, including the size
and diversity of their sources of revenues, enrollment, reputation, management
expertise, the availability and restrictions on the use of endowments and other
funds, the quality and maintenance costs of campus facilities, and, in the case
of public institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education. The
institution's ability to maintain enrollment levels will depend on such factors
as tuition costs, demographic trends, geographic location, geographic diversity
and quality of the student body, quality of the faculty and the diversity of
program offerings.
Legislative or regulatory action in the future at the Federal, state or local
level may directly or indirectly affect eligibility standards or reduce or
eliminate the availability of funds for certain types of student loans or grant
programs, including student aid, research grants and work-study programs, and
may affect indirect assistance for education.
LEASE RENTAL BONDS. Lease rental bonds are issued for the most part by
governmental authorities that have no taxing power or other means of directly
raising revenues. Rather, the authorities are financing vehicles created solely
for the construction of buildings (administrative offices, convention centers
and prisons, for example) or the purchase of equipment (police cars and
computer systems, for example) that will be used by a state or local government
(the "lessee"). Thus, the bonds are subject to the ability and willingness of
the lessee government to meet its lease rental payments which include debt
service on the bonds. Willingness to pay may be subject to changes in the views
of citizens and government officials as to the essential nature of the finance
project. Lease rental bonds are subject, in almost all cases, to the annual
appropriation risk, i.e., the lessee government is not legally obligated to
budget and appropriate for the rental payments beyond the current fiscal year.
These bonds are also subject to the risk of abatement in many states--rental
bonds cease in the event that damage, destruction or condemnation of the
project prevents its use by the lessee. (In these cases, insurance provisions
and reserve funds designed to alleviate this risk become important credit
factors). In the event of default by the lessee government, there may be
significant legal and/or practical difficulties involved in the reletting or
sale of the project. Some of these issues, particularly those for equipment
purchase, contain the so-called "substitution safeguard", which bars the lessee
government, in the event it defaults on its rental payments, from the purchase
or use of similar equipment for a certain period of time. This safeguard is
designed to insure that the lessee government will appropriate the necessary
funds even though it is not legally obligated to do so, but its legality
remains untested in most, if not all, states.
CAPITAL IMPROVEMENT FACILITY BONDS. The Portfolio of a Trust may contain
Bonds which are in the capital improvement facilities category. Capital
improvement bonds are bonds issued to provide funds to assist political
subdivisions or agencies of a state through acquisition of the underlying debt
of a state or local political subdivision or agency which bonds are secured by
the proceeds of the sale of the bonds, proceeds from investments and the
indebtedness of a local political subdivision or agency. The risks of an
investment in such bonds include the risk of possible prepayment or failure of
payment of proceeds on and default of the underlying debt.
SOLID WASTE DISPOSAL BONDS. Bonds issued for solid waste disposal facilities
are generally payable from tipping fees and from revenues that may be earned by
the facility on the sale of electrical energy generated in the combustion of
waste products. The ability of solid waste disposal facilities to meet their
obligations depends upon the continued use of the facility, the successful and
efficient operation of the facility and, in the case of waste-to-energy
facilities, the continued ability of the facility to generate electricity on a
commercial basis. All of these factors may be affected by a failure of
municipalities to fully utilize the facilities, an insufficient supply of waste
for disposal due to economic or population decline, rising construction and
maintenance costs, any delays in construction of facilities, lower-cost
alternative modes of waste processing and changes in environmental regulations.
Because of the relatively short history of this type of financing, there may be
technological risks involved in the satisfactory construction or operation of
the projects exceeding those associated with most municipal enterprise
projects. Increasing environmental regulation on the federal, state and local
level has a significant impact on waste disposal facilities. While regulation
requires more waste producers to use waste disposal facilities, it also imposes
significant costs on the facilities. These costs include compliance with
frequently changing and complex regulatory requirements, the cost of obtaining
construction and operating permits, the cost of conforming to prescribed and
changing equipment standards and required methods of operation and, for
incinerators or waste-to-energy facilities, the cost of disposing of the waste
residue that remains after the disposal process in an environmentally safe
manner. In addition, waste disposal facilities frequently face substantial
opposition by environmental groups and officials to their location and
operation, to the possible adverse effects upon the public health and the
environment that may be caused by wastes disposed of at the facilities and to
alleged improper operating procedures. Waste disposal facilities benefit from
laws which require waste to be disposed of in a certain manner but any
relaxation of these laws could cause a decline in demand for the facilities'
services. Finally, waste-to-energy facilities are concerned with many of the
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same issues facing utilities insofar as they derive revenues from the sale of
energy to local power utilities (see Power Facility Bonds above).
MORAL OBLIGATION BONDS. The Trust may also include "moral obligation" bonds.
If an issuer of moral obligation bonds is unable to meet its obligations, the
repayment of the bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question. Even though the state may be called on
to restore any deficits in capital reserve funds of the agencies or authorities
which issued the bonds, any restoration generally requires appropriation by the
state legislature and accordingly does not constitute a legally enforceable
obligation or debt of the state. The agencies or authorities generally have no
taxing power.
REFUNDED BONDS. Refunded Bonds are typically secured by direct obligations of
the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally noncallable prior to maturity or the predetermined redemption date.
In a few isolated instances to date, however, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.
AIRPORT, PORT AND HIGHWAY REVENUE BONDS. Certain facility revenue bonds are
payable from and secured by the revenues from the ownership and operation of
particular facilities, such as airports (including airport terminals and
maintenance facilities), bridges, marine terminals, turnpikes and port
authorities. For example, the major portion of gross airport operating income
is generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for airport use, occupancy of
certain terminal space, facilities, service fees, concessions and leases.
Airport operating income may therefore be affected by the ability of the
airlines to meet their obligations under the use agreements. The air transport
industry is experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased aviation fuel costs,
deregulation, traffic constraints, the recent recession and other factors. As a
result, several airlines are experiencing severe financial difficulties.
Several airlines including America West Airlines have sought protection from
their creditors under Chapter 11 of the Bankruptcy Code. In addition, other
airlines such as Midway Airlines Inc., Eastern Airlines, Inc. and Pan American
Corporation have been liquidated. However, Continental Airlines and Trans World
Airlines have emerged from bankruptcy. The Sponsor cannot predict what effect
these industry conditions may have on airport revenues which are dependent for
payment on the financial condition of the airlines and their usage of the
particular airport facility. Furthermore, proposed Legislation would provide
the U.S. Secretary of Transportation with the temporary authority to freeze
airport fees upon the occurrence of disputes between a particular airport
facility and the airlines utilizing that facility.
Similarly, payment on bonds related to other facilities is dependent on
revenues from the projects, such as use fees from ports, tolls on turnpikes and
bridges and rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors and increased cost of maintenance
or decreased use of a facility, lower cost of alternative modes of
transportation or scarcity of fuel and reduction or loss of rents.
SPECIAL TAX BONDS. Special tax bonds are payable from and secured by the
revenues derived by a municipality from a particular tax such as a tax on the
rental of a hotel room, on the purchase of food and beverages, on the rental of
automobiles or on the consumption of liquor. Special tax bonds are not secured
by the general tax revenues of the municipality, and they do not represent
general obligations of the municipality. Therefore, payment on special tax
bonds may be adversely affected by a reduction in revenues realized from the
underlying special tax due to a general decline in the local economy or
population or due to a decline in the consumption, use or cost of the goods and
services that are subject to taxation. Also, should spending on the particular
goods or services that are subject to the special tax decline, the municipality
may be under no obligation to increase the rate of the special tax to ensure
that sufficient revenues are raised from the shrinking taxable base.
TAX ALLOCATION BONDS. Tax allocation bonds are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds are located ("project
areas"). Such payments are expected to be made from projected increases in tax
revenues derived from higher assessed values of property resulting from
development in the particular project area and not from an increase in tax
rates. Special risk considerations include: reduction of, or a less than
anticipated increase in, taxable values of property in the project area, caused
either by economic factors beyond the Issuer's control (such as a relocation
out of the project area by one or more major property owners) or by destruction
of property due to natural or other disasters; successful appeals by property
owners of assessed valuations; substantial delinquencies in the payment of
property taxes; or imposition of any constitutional or legislative property tax
rate decrease.
TRANSIT AUTHORITY BONDS. Mass transit is generally not self-supporting from
fare revenues. Therefore, additional financial resources must be made available
to ensure operation of mass transit systems as well as the timely payment of
debt service. Often such financial resources include Federal and state
subsidies, lease rentals paid by funds of the state or local government or a
pledge of a special tax such as a sales tax or a property tax. If fare revenues
or the additional financial resources do not increase appropriately to pay for
rising operating expenses, the ability of the issuer to adequately service the
debt may be adversely affected.
CONVENTION FACILITY BONDS. The Portfolio of a Trust may contain Bonds of
issuers in the convention facilities category. Bonds in the convention
facilities category include special limited obligation securities issued to
finance convention and sports facilities payable from
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rental payments and annual governmental appropriations. The governmental agency
is not obligated to make payments in any year in which the monies have not been
appropriated to make such payments. In addition, these facilities are limited
use facilities that may not be used for purposes other than as convention
centers or sports facilities.
PUERTO RICO. The Portfolio may contain bonds of issuers which will be
affected by general economic conditions in Puerto Rico. Puerto Rico's
unemployment rate remains significantly higher than the U.S. unemployment rate.
Furthermore, the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated.
The Puerto Rican economy is affected by a number of Commonwealth and Federal
investment incentive programs. For example, Section 936 of the Internal Revenue
Code (the "Code") provides for a credit against Federal income taxes for U.S.
companies operating on the island if certain requirements are met. The Omnibus
Budget Reconciliation Act of 1993 imposes limits on such credit, effective for
tax years beginning after 1993. In addition, from time to time proposals are
introduced in Congress which, if enacted into law, would eliminate some or all
of the benefits of Section 936. Although no assessment can be made at this time
of the precise effect of such limitation, it is expected that the limitation of
Section 936 credits would have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily on Federal
programs, and current Federal budgetary policies suggest that an expansion of
aid to Puerto Rico is unlikely. An adverse effect on the Puerto Rican economy
could result from other U.S. policies, including a reduction of tax benefits
for distilled products, further reduction in transfer payment programs such as
food stamps, curtailment of military spending and policies which could lead to
a stronger dollar.
In a plebiscite held in November, 1993, the Puerto Rican electorate chose to
continue Puerto Rico's Commonwealth status. Previously proposed legislation,
which was not enacted, would have preserved the federal tax exempt status of
the outstanding debts of Puerto Rico and its public corporations regardless of
the outcome of the referendum, to the extent that similar obligations issued by
states are so treated and subject to the provisions of the Code currently in
effect. There can be no assurance that any pending or future legislation
finally enacted will include the same or similar protection against loss of tax
exemption. The November 1993 plebiscite can be expected to have both direct and
indirect consequences on such matters as the basic characteristics of future
Puerto Rico debt obligations, the markets for these obligations, and the types,
levels and quality of revenue sources pledged for the payment of existing and
future debt obligations. Such possible consequences include, without
limitation, legislative proposals seeking restoration of the status of Section
936 benefits otherwise subject to the limitations discussed above. However, no
assessment can be made at this time of the economic and other effects of a
change in federal laws affecting Puerto Rico as a result of the November 1993
plebiscite.
INSURANCE. Certain Bonds (the "Insured Bonds") may be insured or guaranteed
by AMBAC Indemnity Corporation ("AMBAC"), Asset Guaranty Reinsurance Company
("Asset Guaranty"), Capital Guaranty Insurance Company ("CGIC"), Capital
Markets Assurance Corp. ("CAPMAC"), Connie Lee Insurance Company ("Connie
Lee"), Financial Guaranty Insurance Company "Financial Guaranty"), Financial
Security Assurance Inc. ("FSA"), or Municipal Bond Investors Assurance
Corporation ("MBIA") (collectively, the "Insurance Companies"). The claims-
paying ability of each of these companies, unless otherwise indicated, is rated
AAA by Standard & Poor's or another acceptable national rating service. The
ratings are subject to change at any time at the discretion of the rating
agencies. In determining whether to insure bonds, the Insurance Companies
severally apply their own standards. The cost of this insurance is borne either
by the issuers or previous owners of the bonds or by the Sponsor. The insurance
policies are non-cancellable and will continue in force so long as the Insured
Bonds are outstanding and the insurers remain in business. The insurance
policies guarantee the timely payment of principal and interest on but do not
guarantee the market value of the Insured Bonds or the value of the Units. The
insurance policies generally do not provide for accelerated payments of
principal or, except in the case of any portfolio insurance policies, cover
redemptions resulting from events of taxability. If the issuer of any Insured
Bond should fail to make an interest or principal payment, the insurance
policies generally provide that the Trustee or its agent shall give notice of
nonpayment to the Insurance Company or its agent and provide evidence of the
Trustee's right to receive payment. The Insurance Company is then required to
disburse the amount of the failed payment to the Trustee or its agent and is
thereafter subrogated to the Trustee's right to receive payment from the
issuer.
The following are brief descriptions of certain of the insurance companies
that may insure or guarantee certain Bonds. The financial information presented
for each company has been determined on a statutory basis and is unaudited.
AMBAC is a Wisconsin-domiciled stock insurance company, regulated by the
Insurance Department of the State of Wisconsin, and licensed to do business in
various states, with admitted assets of approximately $2,150,000,000 and
policyholders' surplus of approximately $779,000,000 as of September 30, 1994.
AMBAC is a wholly-owned subsidiary of AMBAC Inc., a financial holding company
which is publicly owned following a complete divestiture by Citibank during the
first quarter of 1992.
Asset Guaranty is a New York State insurance company licensed to write
financial guarantee, credit, residual value and surety insurance. Asset
Guaranty commenced operations in mid-1988 by providing reinsurance to several
major monoline insurers. Asset Guaranty also issued limited amounts of primary
financial guaranty insurance, but not in direct competition with the primary
mono-line companies for which it acts as a reinsurer. The parent holding
company of Asset Guaranty, Asset Guarantee Inc. (AGI), merged with Enhance
Financial Services (EFS) in June, 1990 to form Enhance Financial Services Group
Inc. (EFSG). The two main, 100%-owned
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subsidiaries of EFSG, Asset Guaranty and Enhance Reinsurance Company (ERC),
share common management and physical resources. After an initial public
offering completed in February 1992 and the sale by Merrill Lynch & Co. of its
stake, EFSG is 49.8%-owned by the public, 29.9% by US West Financial Services,
14.1% by Manufacturers Life Insurance Co. and 6.2% by senior management. Both
ERC and Asset Guaranty are rated "AAA" for claims paying ability by Duff &
Phelps. ERC is rated triple-A for claims-paying ability by both S&P and
Moody's. Asset Guaranty received a "AA" claims-paying-ability rating from S&P
during August 1993, but remains unrated by Moody's. As of September 30, 1994
Asset Guaranty had admitted assets of approximately $152,000,000 and
policyholders' surplus of approximately $73,000,000.
CAPMAC commenced operations in December 1987, as the second monoline
financial guaranty insurance company (after FSA) organized solely to insure
non-municipal obligations. CAPMAC, a New York corporation, is a wholly-owned
subsidiary of CAPMAC Holdings, Inc. (CHI), which was sold in 1992 by Citibank
(New York State) to a group of 12 investors led by the following: Dillon Read's
Saratoga Partners II; L.P. (Saratoga), an acquisition fund; Caprock Management,
Inc., representing Rockefeller family interests; Citigrowth Fund, a Citicorp
venture capital group; and CAPMAC senior management and staff. These groups
control approximately 70% of the stock of CHI. CAPMAC had traditionally
specialized in guaranteeing consumer loan and trade receivable asset-backed
securities. Under the new ownership group CAPMAC intends to become involved in
the municipal bond insurance business, as well as their traditional non-
municipal business. As of September 30, 1994 CAPMAC's admitted assets were
approximately $198,000,000 and its policyholders' surplus was approximately
$139,000,000.
CGIC, a monoline bond insuror headquartered in San Francisco, California, was
established in November 1986 to assume the financial guaranty business of
United States Fidelity and Guaranty Company ("USF&G"). It is a wholly-owned
subsidiary of Capital Guaranty Corporation ("CGC") whose stock is owned by:
Constellation Investments, Inc., an affiliate of Baltimore Gas & Electric,
Fleet/Norstar Financial Group, Inc., Safeco Corporation, Sibag Finance
Corporation, an affiliate of Siemens AG, and USF&G, the 8th largest
property/casualty company in the U.S. as measured by net premiums written, and
CGC management. As of September 30, 1994, CGIC had total admitted assets of
approximately $293,000,000 and policyholders' surplus of approximately
$166,000,000.
Connie Lee is a wholly owned subsidiary of College Construction Loan
Insurance Association ("CCLIA"), a government-sponsored enterprise established
by Congress to provide American academic institutions with greater access to
low-cost capital through enhancement. Connie Lee, the operating insurance
company, was incorporated in 1987 and began business as a reinsurer of tax-
exempt bonds of colleges, universities, and teaching hospitals with a
concentration on the hospital sector. During the fourth quarter of 1991 Connie
Lee began underwriting primary bond insurance which will focus largely on the
college and university sector. CCLIA's founding shareholders are the U.S.
Department of Education, which owns 36% of CCLIA, and the Student Loan
Marketing Association ("Sallie Mae"), which owns 14%. The other principal
owners are: Pennsylvania Public School Employees' Retirement System,
Metropolitan Life Insurance Company, Kemper Financial Services, Johnson family
funds and trusts, Northwestern University, Rockefeller & Co., Inc. administered
trusts and funds, and Stanford University. Connie Lee is domiciled in the state
of Wisconsin and has licenses to do business in 47 states and the District of
Columbia. As of September 30, 1994, its total admitted assets were
approximately $193,000,000 and policyholders' surplus was approximately
$106,000,000.
Financial Guaranty, a New York stock insurance company, is a wholly-owned
subsidiary of FGIC Corporation which is wholly-owned by General Electric
Capital Corporation. The investors in the FGIC Corporation are not obligated to
pay the debts of or the claims against Financial Guaranty. Financial Guaranty
commenced its business of providing insurance and financial guarantees for a
variety of investment instruments in January 1984 and is currently authorized
to provide insurance in 49 states and the District of Columbia. It files
reports with state regulatory agencies and is subject to audit and review by
those authorities. As of September 30, 1994, its total admitted assets were
approximately $2,092,000,000 and its policyholders' surplus was approximately
$872,000,000.
FSA is a monoline property and casualty insurance company incorporated in New
York in 1984. It is a wholly-owned subsidiary of Financial Security Assurance
Holdings Ltd., which was acquired in December 1989 by US West, Inc., the
regional Bell Telephone Company serving the Rocky Mountain and Pacific
Northwestern states. U.S. West is currently seeking to sell FSA. FSA is
licensed to engage in the surety business in 42 states and the District of
Columbia. FSA is engaged exclusively in the business of writing financial
guaranty insurance on both tax-exempt and non-municipal securities. As of
September 30, 1994, FSA had policyholders' surplus of approximately
$366,000,000 and total admitted assets of approximately $776,000,000.
MBIA is the principal operating subsidiary of MBIA Inc. The principal
shareholders of MBIA Inc. were originally Aetna Casualty and Surety Company,
The Fund American Companies, Inc., subsidiaries of CIGNA Corporation and Credit
Local de France, CAECL, S.A. These principal shareholders now own approximately
13% of the outstanding common stock of MBIA Inc., following a series of four
public equity offerings over a five-year period. As of September 30, 1994, MBIA
had admitted assets of approximately $3,314,000,000 and policyholders' surplus
of approximately $1,083,000,000.
Insurance companies are subject to regulation and supervision in the
jurisdictions in which they do business under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. This regulation, supervision and administration relate, among
other things, to: the standards of solvency which must be met and maintained;
the licensing of insurers
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and their agents; the nature of and limitations on investments; deposits of
securities for the benefit of policyholders; approval of policy forms and
premium rates; periodic examinations of the affairs of insurance companies;
annual and other reports required to be filed on the financial condition of
insurers or for other purposes; and requirements regarding reserves for
unearned premiums, losses and other matters. Regulatory agencies require that
premium rates not be excessive, inadequate or unfairly discriminatory.
Insurance regulation in many states also includes "assigned risk" plans,
reinsurance facilities, and joint underwriting associations, under which all
insurers writing particular lines of insurance within the jurisdiction must
accept, for one or more of those lines, risks unable to secure coverage in
voluntary markets. A significant portion of the assets of insurance companies
is required by law to be held in reserve against potential claims on policies
and is not available to general creditors.
Although the Federal government does not regulate the business of insurance,
Federal initiatives can significantly impact the insurance business. Current
and proposed Federal measures which may significantly affect the insurance
business include pension regulation (ERISA), controls on medical care costs,
minimum standards for no-fault automobile insurance, national health insurance,
personal privacy protection, tax law changes affecting life insurance companies
or the relative desirability of various personal investment vehicles and repeal
of the current antitrust exemption for the insurance business. (If this
exemption is eliminated, it will substantially affect the way premium rates are
set by all property-liability insurers.) In addition, the Federal government
operates in some cases as a co-insurer with the private sector insurance
companies.
Insurance companies are also affected by a variety of state and Federal
regulatory measures and judicial decisions that define and extend the risks and
benefits for which insurance is sought and provided. These include judicial
redefinitions of risk exposure in areas such as products liability and state
and Federal extension and protection of employee benefits, including pension,
workers' compensation, and disability benefits. These developments may result
in short-term adverse effects on the profitability of various lines of
insurance. Longer-term adverse effects can often be minimized through prompt
repricing of coverages and revision of policy terms. In some instances, these
developments may create new opportunities for business growth. All insurance
companies write policies and set premiums based on actuarial assumptions about
mortality, injury, the occurrence of accidents and other insured events. These
assumptions, while well supported by past experience, necessarily do not take
account of future events. The occurrence in the future of unforeseen
circumstances could affect the financial condition of one or more insurance
companies. The insurance business is highly competitive and with the
deregulation of financial service businesses, it should become more
competitive. In addition, insurance companies may expand into non-traditional
lines of business which may involve different types of risks.
The above financial information relating to the Insurance Companies has been
obtained from publicly available information. No representation is made as to
the accuracy or adequacy of the information or as to the absence of material
adverse changes since the information was made available to the public.
LITIGATION AND LEGISLATION. To the best knowledge of the Sponsor, there is no
litigation pending as of the Initial Date in respect of any Bonds which might
reasonably be expected to have a material adverse effect upon the Trust. At any
time after the Initial Date of Deposit, litigation may be initiated on a
variety of grounds, or legislation may be enacted, with respect to Bonds in the
Trust. Litigation, for example, challenging the issuance of pollution control
revenue bonds under environmental protection statutes may affect the validity
of Bonds or the tax-free nature of their interest. While the outcome of
litigation of this nature can never be entirely predicted, opinions of bond
counsel are delivered on the date of issuance of each Bond to the effect that
the Bond has been validly issued and that the interest thereon is exempt from
Federal income tax. In addition, other factors may arise from time to time
which potentially may impair the ability of issuers to make payments due on the
Bonds.
Under the Federal Bankruptcy Act, a political subdivision or public agency or
instrumentality of any state, including municipalities, may proceed to
restructure or otherwise alter the terms of its obligations, including those of
the type comprising the Trust's Portfolio. The Sponsor is unable to predict
what effect, if any, this legislation might have on the Trust.
From time to time Congress considers proposals to tax the interest on state
and local obligations, such as the Bonds. The Supreme Court clarified in South
Carolina v. Baker (decided April 20, 1988) that the U.S. Constitution does not
prohibit Congress from passing a nondiscriminatory tax on interest on state and
local obligations. This type of legislation, if enacted into law, could
adversely affect an investment in Units. Holders are urged to consult their own
tax advisers.
TAX EXEMPTION. In the opinion of bond counsel rendered on the date of
issuance of each Bond, the interest on each Bond is excludable from gross
income under existing law for regular Federal income tax purposes (except in
certain circumstances depending on the Holder) but may be subject to state and
local taxes. As discussed under Taxes below, interest on some or all of the
Bonds may become subject to regular Federal income tax, perhaps retroactively
to their date of issuance, as a result of changes in Federal law or as a result
of the failure of issuers (or other users of the proceeds of the Bonds) to
comply with certain ongoing requirements.
Moreover, the Internal Revenue Service announced on June 14, 1993 that it
will be expanding its examination program with respect to tax-exempt bonds. The
expanded examination program will consist of, among other measures, increased
enforcement against abusive transactions, broader audit coverage (including the
expected issuance of audit guidelines) and expanded compliance achieved by
means
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of expected revisions to the tax-exempt bond information return forms. At this
time, it is uncertain whether the tax exempt status of any of the Bonds would
be affected by such proceedings, or whether such effect, if any, would be
retroactive.
In certain cases, a Bond may provide that if the interest on the Bond should
ultimately be determined to be taxable, the Bond would become due and payable
by its issuer, and, in addition, may provide that any related letter of credit
or other security could be called upon if the issuer failed to satisfy all or
part of its obligation. In other cases, however, a Bond may not provide for the
acceleration or redemption of the Bond or a call upon the related letter of
credit or other security upon a determination of taxability. In those cases in
which a Bond does not provide for acceleration or redemption or in which both
the issuer and the bank or other entity issuing the letter of credit or other
security are unable to meet their obligations to pay the amounts due on the
Bond as a result of a determination of taxability, the Trustee would be
obligated to sell the Bond and, since it would be sold as a taxable security,
it is expected that it would have to be sold at a substantial discount from
current market price. In addition, as mentioned above, under certain
circumstances Holders could be required to pay income tax on interest received
prior to the date on which the interest is determined to be taxable.
THE UNITS
On the Date of Deposit, each Unit in a Trust represented a fractional
undivided interest in the principal and net income of such Trust as is set
forth in Part A, "Summary of Essential Information."
If any Units are redeemed after the date of this Prospectus by the Trustee,
the principal amount of Bonds in the affected Trust will be reduced by an
amount allocable to redeemed Units and the fractional undivided interest in the
affected Trust represented by each unredeemed Unit will be increased. Units
will remain outstanding until redeemed upon tender to the Trustee by any Unit
holder, which may include the Sponsor, or until the termination of the Trust
Agreement. (See "Amendment and Termination of the Trust Agreement--
Termination.")
TAXES
The following discussion addresses only the tax consequences of Units held as
capital assets and does not address the tax consequences of Units held by
dealers, financial institutions or insurance companies.
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsor,
under existing law:
The Trusts are not associations taxable as corporations for Federal
income tax purposes, and income received by the Trusts will be treated as
the income of the Unit holders ("Holders") in the manner set forth below.
Each Holder of Units of a Trust will be considered the owner of a pro
rata portion of each Bond in the Trust under the grantor trust rules of
Sections 671-679 of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to determine the face amount of a Holder's pro rata
portion of each Bond on the Date of Deposit, see "Aggregate Principal"
under "Portfolio of Securities". The total cost to a Holder of his Units,
including sales charges, is allocated to his pro rata portion of each Bond,
in proportion to the fair market values thereof on the date the Holder
purchases his Units, in order to determine his tax cost for his pro rata
portion of each Bond. In order for a Holder who purchases his Units on the
Date of Deposit to determine the fair market value of his pro rata portion
of each Bond on such date, see "Cost of Securities to Trust" under
"Portfolio of Securities".
Each Holder of Units of a Trust will be considered to have received the
interest on his pro rata portion of each Bond when interest on the Bond is
received by the Trust. In the opinion of bond counsel (delivered on the
date of issuance of each Bond), such interest will be excludable from gross
income for regular Federal income tax purposes (except in certain limited
circumstances referred to below). Amounts received by a Trust pursuant to a
bank letter of credit, guarantee or insurance policy with respect to
payments of principal, premium or interest on a Bond in the Trust will be
treated for Federal income tax purposes in the same manner as if such
amounts were paid by the issuer of the Bond.
The Trusts may contain Bonds which were originally issued at a discount
("original issue discount"). The following principles will apply to each
Holder's pro rata portion of any Bond originally issued at a discount. In
general, original issue discount is defined as the difference between the
price at which a debt obligation was issued and its stated redemption price
at maturity. Original issue discount on a tax-exempt obligation issued
after September 3, 1982, is deemed to accrue as tax-exempt interest over
the life of the obligation under a formula based on the compounding of
interest. Original issue discount on a tax-exempt obligation issued before
July 2, 1982 is deemed to accrue as tax-exempt interest ratably over the
life of the obligation. Original issue discount on any tax-exempt
obligation issued during the period beginning July 2, 1982 and ending
September 3, 1982 is also deemed to accrue as tax-exempt interest over the
life of the obligation, although it is not clear whether such accrual is
ratable or is determined under a formula based on the compounding of
interest. If a Holder's tax cost for his pro rata portion of a Bond issued
with original issue discount is greater than its "adjusted issue price" but
less than its stated redemption price at maturity (as may be adjusted for
certain payments), the Holder will be considered to have purchased his pro
rata portion of the Bond at an "acquisition premium." A
B-12
<PAGE>
Holder's adjusted tax basis for his pro rata portion of a Bond issued with
original issue discount will include original issue discount accrued during
the period such Holder held his Units. Such increases to the Holder's tax
basis in his pro rata portion of the Bond resulting from the accrual of
original issue discount, however, will be reduced by the amortization of
any such acquisition premium.
If a Holder's tax basis for his pro rata portion of a Bond in the
Holder's Trust exceeds the redemption price at maturity thereof (subject to
certain adjustments), the Holder will be considered to have purchased his
pro rata portion of the Bond with "amortizable bond premium". The Holder is
required to amortize such bond premium over the term of the Bond. Such
amortization is only a reduction of basis for his pro rata portion of the
Bond and does not result in any deduction against the Holder's income.
Therefore, under some circumstances, a Holder may recognize taxable gain
when his pro rata portion of a Bond is disposed of for an amount equal to
or less than his original tax basis therefor.
A Holder will recognize taxable gain or loss when all or part of his pro
rata portion of a Bond in his Trust is disposed of by the Trust for an
amount greater or less than his adjusted tax basis. Any such taxable gain
or loss will be capital gain or loss, except that any gain from the
disposition of a Holder's pro rata portion of a Bond acquired by the Holder
at a "market discount" (i.e., where the Holder's original basis for his pro
rata portion of the Bond (plus any original issue discount which will
accrue thereon until its maturity) is less than its stated redemption price
at maturity) would be treated as ordinary income to the extent the gain
does not exceed the accrued market discount. Capital gains are generally
taxed at the same rate as ordinary income. However, the excess of net long-
term capital gains over net short-term capital losses may be taxed at a
lower rate than ordinary income for certain noncorporate taxpayers. A
capital gain or loss is long-term if the asset is held for more than one
year and short-term if held for one year or less. The deduction of capital
losses is subject to limitations. A Holder will also be considered to have
disposed of all or part of his pro rata portion of each Bond when he sells
or redeems all or some of his Units.
Under the income tax laws of the State and City of New York, the Trust is
not an association taxable as a corporation and income received by each
Trust will be treated as the income of the Holders in the same manner as
for Federal income tax purposes, but will not necessarily be tax-exempt.
Under Section 265 of the Code, a Holder (except a corporate Holder) is
not entitled to a deduction for his pro rata share of fees and expenses of
a Trust because the fees and expenses are incurred in connection with the
production of tax-exempt income. Further, if borrowed funds are used by a
Holder to purchase or carry Units of any Trust, interest on such
indebtedness will not be deductible for Federal income tax purposes. In
addition, under rules used by the Internal Revenue Service, the purchase of
Units may be considered to have been made with borrowed funds even though
the borrowed funds are not directly traceable to the purchase of Units.
Similar rules may be applicable for state tax purposes.
From time to time proposals are introduced in Congress and state
legislatures which, if enacted into law, could have an adverse impact on
the tax-exempt status of the Bonds. It is impossible to predict whether any
legislation in respect of the tax status of interest on such obligations
may be proposed and eventually enacted at the Federal or state level.
The forgoing discussion relates only to Federal and certain aspects of
New York State and City income taxes. Depending on their state of
residence, Holders may be subject to state and local taxation and should
consult their own tax advisers in this regard.
* * * * *
Interest on certain tax-exempt bonds issued after August 7, 1986 will be a
preference item for purposes of the alternative minimum tax ("AMT"). The
Sponsor believes that interest (including any original issue discount) on the
Bonds should not be subject to the AMT for individuals or corporations under
this rule. A corporate Holder should be aware, however, that the accrual or
receipt of tax-exempt interest not subject to the AMT may give rise to an
alternative minimum tax liability (or increase an existing liability) because
the interest income will be included in the corporation's "adjusted current
earnings" for purposes of the adjustment to alternative minimum taxable income
required by Section 56(g) of the Code and will be taken into account for
purposes of the environmental tax on corporations under Section 59A of the
Code, which is based on an alternative minimum taxable income.
In addition, interest on the Bonds must be taken into consideration in
computing the portion, if any, of social security benefits that will be
included in an individual's gross income and subject to Federal income tax.
Holders are urged to consult their own tax advisers concerning an investment in
Units.
At the time of issuance of each Bond, an opinion relating to the validity of
the Bond and to the exemption of interest thereon from regular Federal income
taxes was or will be rendered by bond counsel. Neither the Sponsor nor Davis
Polk & Wardwell have made or will make any review of the proceedings relating
to the issuance of the Bonds or the basis for these opinions. The tax exemption
is dependent upon the issuer's (and other users') compliance with certain
ongoing requirements, and the opinion of bond counsel assumes that these
requirements will be complied with. However, there can be no assurance that the
issuer (and other users) will comply with these requirements, in which event
the interest on the Bond could be determined to be taxable retroactively to the
date of issuance.
B-13
<PAGE>
In the case of certain of the Bonds, the opinions of bond counsel indicate
that interest on such Bonds received by a "substantial user" of the facilities
being financed with the proceeds of such Bonds, or persons related thereto, for
periods while such Bonds are held by such a user or related person, will not be
exempt from regular Federal income taxes, although interest on such Bonds
received by others would be exempt from regular Federal income taxes.
"Substantial user" is defined under U.S. Treasury Regulations to include only a
person whose gross revenue derived with respect to the facilities financed by
the issuance of bonds is more than 5% of the total revenue derived by all users
of such facilities, or who occupies more than 5% of the usable area of such
facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" are defined to
include certain related natural persons, affiliated corporations, partners and
partnerships. Similar rules may be applicable for state tax purposes.
After the end of each calendar year, the Trustee will furnish to each Holder
an annual statement containing information relating to the interest received by
the Trust on the Bonds, the gross proceeds received by the Trust from the
disposition of any Bond (resulting from redemption or payment at maturity of
any Bond or the sale by the Trust of any Bond), and the fees and expenses paid
by the Trust. The Trustee will also furnish annual information returns to each
Holder and to the Internal Revenue Service. Holders are required to report to
the Internal Revenue Service the amount of tax-exempt interest received during
the year.
EXPENSES AND CHARGES
INITIAL EXPENSES
All of the expenses of creating and establishing the Trusts, including the
cost of the initial preparation and execution of the Trust Agreement, initial
preparation and printing of the certificates for Units, the fees of the
Evaluator during the initial public offering, legal expenses, advertising and
selling expenses and other out-of-pocket expenses will be paid at no cost to
the Trusts.
TRUSTEE'S, SPONSOR'S AND EVALUATOR'S FEES
The Trustee will receive for its ordinary recurring services to a Trust an
annual fee in the amount set forth under Part A, "Summary of Essential
Information." For a discussion of the services performed by the Trustee
pursuant to its obligations under the Trust Agreement, see "Rights of Unit
Holders." The Trustee will receive the benefit of any reasonable cash balances
in the Income and Principal Accounts.
The Portfolio supervision fee (the "Supervision Fee") which is earned for
Portfolio supervisory services is based upon the greatest face amount of Bonds
in the Trust at any time during the calendar year with respect to which the fee
is being computed.
The Supervision Fee, which is not to exceed the amount set forth in Part A--
"Summary of Essential Information", may exceed the actual costs of providing
Portfolio supervisory services for such Trust, but at no time will the total
amount the Sponsor receives for Portfolio supervisory services rendered to all
series of Tax Exempt Securities Trust in any calendar year exceed the aggregate
cost to them of supplying such services in such year. In addition, the Sponsor
may also be reimbursed for bookkeeping and other administrative services
provided to the Trust in amounts not exceeding their costs of providing these
services.
The Evaluator will receive a fee in the amount set forth under Part A,
"Summary of Essential Information," for each evaluation of the Bonds in a
Trust. For a discussion of the services performed by the Evaluator pursuant to
its obligations under the Trust Agreement, see "Evaluator--Responsibility" and
"Public Offering--Offering Price."
Any of such fees may be increased without approval of the Unit holders by
amounts not exceeding proportionate increases in consumer prices for services
as measured by the United States Department of Labor's Consumer Price Index
entitled "All Services Less Rent" or, if such Index is no longer published, in
a similar Index to be determined by the Trustee and the Sponsor.
OTHER CHARGES
The following additional charges are or may be incurred by a Trust: all
expenses of the Trustee (including fees and expenses of counsel and auditors)
incurred in connection with its activities under the Trust Agreement, including
reports and communications to Unit holders; expenses and costs of any action
undertaken by the Trustee to protect a Trust and the rights and interests of
the Unit holders; fees of the Trustee for any extraordinary services performed
under the Trust Agreement; indemnification of the Trustee for any loss or
liability accruing to it without gross negligence, bad faith or willful
misconduct on its part, arising out of or in connection with its acceptance or
administration of a Trust; to the extent lawful, expenses (including legal,
accounting and printing expenses) of maintaining registration or qualification
of the Units and/or a Trust under Federal or state securities laws subsequent
to initial registration so long as the Sponsor maintains a market for the Units
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 or made or, to the
knowledge of the Sponsor, contemplated). The above expenses, including the
Trustee's fee, when paid by or owing to the Trustee, are secured by a lien on
the Trust. In addition, the Trustee is empowered to sell Bonds in order to make
funds available to pay all expenses.
B-14
<PAGE>
PUBLIC OFFERING
OFFERING PRICE
During the initial public offering period, the Public Offering Price of the
Units of a Trust is determined by adding to the Evaluator's determination of
the aggregate OFFERING price of the Bonds per Unit a sales charge equal to a
percentage of the Public Offering Price of the Units of the Trust, as set forth
in the table below. After the initial public offering period, the Public
Offering Price of the Units of a Trust will be determined by adding to the
Evaluator's determination of the aggregate BID price of the Bonds per Unit a
sales charge equal to 5.00% of the Public Offering Price (5.263% of the
aggregate bid price of the Bonds per Unit). A proportionate share of accrued
and undistributed interest on the Bonds in a Trust at the date of delivery of
the Units of such Trust to the purchaser is also added to the Public Offering
Price. (See "Rights of Unit Holders--Distribution of Interest and Principal.")
During the initial public offering period, the sales charge and dealer
concession for the Trusts will be reduced as follows:
<TABLE>
<CAPTION>
STATE TRUSTS
------------
PERCENT OF PERCENT OF
PUBLIC NET AMOUNT DEALER
UNITS PURCHASED+ OFFERING PRICE INVESTED CONCESSION
- ---------------- -------------- ---------- --------------
<S> <C> <C> <C>
1- 99.............................. 4.70% 4.932% $33.00
100-249.............................. 4.25% 4.439% $32.00
250-499.............................. 4.00% 4.167% $30.00
500-999.............................. 3.50% 3.627% $25.00
1,000 or more.......................... 3.00% 3.093% $20.00
<CAPTION>
NATIONAL TRUST
--------------
DEALER
CONCESSION
PERCENT OF PERCENT OF AS PERCENT OF
PUBLIC NET AMOUNT PUBLIC
UNITS PURCHASED+ OFFERING PRICE INVESTED OFFERING PRICE
- ---------------- -------------- ---------- --------------
<S> <C> <C> <C>
1- 99................................ 4.70% 4.932% 3.29%
100-249................................ 4.25% 4.439% 2.97
250-499................................ 4.00% 4.167% 2.80
500-999................................ 3.50% 3.627% 2.45
1,000 or more.......................... 3.00% 3.093% 2.10
</TABLE>
The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.
- -------
+ The reduced sales charge is also applied on a dollar basis utilizing a
breakpoint equivalent in the above table of $1,000 for one Unit, etc.
Pursuant to employee benefit plans, Units of a Trust are available to
employees of the Sponsor, during the initial public offering period, at a
Public Offering Price equal to the Evaluator's determination of the aggregate
offering price of the Bonds of a Trust per Unit plus a sales charge of 1.25% of
the Public Offering Price and after the initial public offering period, at a
Public Offering Price equal to the Evaluator's determination of the aggregate
bid price of the Bonds of a Trust per Unit plus a sales charge of 1.25% of the
Public Offering Price. Sales through such plans to employees of the Sponsor
result in less selling effort and selling expenses than sales to the general
public.
METHOD OF EVALUATION
During the initial public offering period, the aggregate offering price of
the Bonds is determined by the Evaluator (1) on the basis of current offering
prices for the Bonds*, (2) if offering prices are not available for any Bonds,
on the basis of current offering prices for comparable securities, (3) by
appraisal, or (4) by any combination of the above. Such determinations are made
each business day as of the Evaluation Time set forth in the "Summary of
Essential Information," in Part A, effective for all sales made subsequent to
the last preceding determination. Following the initial public offering period,
the aggregate bid price of the Bonds (which is used to calculate the price at
which the Sponsor repurchases and sells Units in the secondary market and the
Redemption Price at which Units may be redeemed) will be determined by the
Evaluator (1) on the basis of the current bid prices for the Bonds*, (2) if bid
prices are not available for any Bonds, on the basis of current bid prices of
comparable securities, (3) by appraisal, or (4) by any combination of the
above. Such determinations will be made each business day as of the Evaluation
Time set forth in the "Summary of Essential Information," in Part A, effective
for all sales made subsequent to the last preceding determination. The term
"business day," as used herein shall exclude
- -------
* Current offering or bid prices of the Deposited Units, if any, are based on
prevailing weekly evaluations of the obligations underlying such Deposited
Units.
B-15
<PAGE>
Saturdays, Sundays and any day on which the New York Stock Exchange is closed.
The difference between the bid and offering prices of the Bonds may be expected
to average approximately 1 1/2% of principal amount. In the case of actively
traded securities, the difference may be as little as 1/2 of 1%, and in the
case of inactively traded securities such difference will usually not exceed
3%. The price at which Units may be repurchased by the Sponsor in the secondary
market could be less than the price paid by the Unit holder. On the Date of
Deposit for each Trust the aggregate current offering price of such Bonds per
Unit exceeded the bid price of such Bonds per Unit by the amounts set forth
under "Summary of Essential Information" in Part A. For information relating to
the calculation of the Redemption Price per Unit, which is also based upon the
aggregate bid price of the underlying Bonds and which may be expected to be
less than the Public Offering Price per Unit, see "Rights of Unit Holders--
Redemption of Units."
DISTRIBUTION OF UNITS
During the initial public offering period Units of a Trust will be
distributed to the public at the Public Offering Price determined in the manner
provided above (see "Public Offering--Offering Price") through the Underwriters
and dealers. The initial public offering period is 30 days unless all Units of
a Trust are sold prior thereto, in which case the initial public offering
period terminates with the sale of all Units. So long as all Units initially
offered have not been sold, the Sponsor may extend the initial public offering
period for up to four additional successive 30-day periods. Upon completion of
the initial public offering, Units which remain unsold or which may be acquired
in the secondary market (see "Public Offering--Market for Units") may be
offered by this Prospectus at the Public Offering Price determined in the
manner provided above (see "Public Offering--Offering Price").
It is the Sponsor's intention to qualify Units of a Trust for sale through
the Underwriters and dealers who are members of the National Association of
Securities Dealers, Inc. Units of a State Trust will be offered for sale only
in the State for which the Trust is named, except that Units of a New York
Trust will also be offered for sale to residents of the State of Connecticut,
the State of Florida and the Commonwealth of Puerto Rico. Units will initially
be sold to dealers at prices which represent a concession equal to the amount
designated in the tables under "Public Offering--Offering Price" herein, for a
Trust with an unreduced sales charge as specified in Part A--"The Public
Offering Price." The Sponsor reserves the right to change the amount of the
concession to dealers from time to time. After the initial offering period the
dealer concession is negotiated on a case-by-case basis.
Sales will be made only with respect to whole Units, and the Sponsor reserves
the right to reject, in whole or in part, any order for the purchase of Units.
A purchaser does not become a Unit holder (Certificate holder) or become
entitled to exercise the rights of a Unit holder (including the right to redeem
his Units) until he has paid for his Units. Generally, such payment must be
made within five business days after an order for the purchase of Units has
been placed. The price paid by a Unit holder is the Public Offering Price in
effect at the time his order is received, plus accrued interest (see "Public
Offering--Method of Evaluation"). This price may be different from the Public
Offering Price in effect on any other day, including the day on which he made
payment for the Units.
MARKET FOR UNITS
Following the initial public offering period the Sponsor, although not
obligated to do so, presently intends to maintain a market for the Units of a
Trust and continuously to offer to purchase such Units at prices based upon the
aggregate bid price of the underlying Bonds. For information relating to the
method and frequency of the Evaluator's determination of the aggregate bid
price of the underlying Bonds, see "Public Offering--Method of Evaluation." The
Sponsor may cease to maintain such a market at any time and from time to time
without notice if the supply of Units of a Trust of this Series exceeds demand
or for any other reason. In this event the Sponsor may nonetheless purchase
Units, as a service to Unit holders, at prices based on the current Redemption
Price of those Units. In the event that a market is not maintained for the
Units of a Trust, a Unit holder of such Trust desiring to dispose of his Units
may be able to do so only by tendering such Units to the Trustee for redemption
at the Redemption Price, which is based upon the aggregate bid price of the
underlying Bonds. The aggregate bid price of the underlying Bonds of a Trust
may be expected to be less than the aggregate offering price.
EXCHANGE OPTION
Unit holders may elect to exchange any or all of their Units of this series
for units of one or more of any series of Tax Exempt Securities Trust (the
"Exchange Trust") available for sale in the state in which the Unit holder
resides at a Public Offering Price for the units of the Exchange Trust to be
acquired based on a fixed sales charge of $25 per unit. The Sponsor reserves
the right to modify, suspend or terminate this plan at any time without further
notice to Unit holders. Therefore, there is no assurance that a market for
units will in fact exist on any given date on which a Unit holder wishes to
sell his Units of this series and thus there is no assurance that the Exchange
Option will be available to a Unit holder. Exchanges will be effected in whole
units ONLY. If the proceeds from the Units being surrendered are less than the
cost of a whole number of units being acquired, the exchanging Holder will be
permitted to add cash in an amount to round up to the next highest number of
whole units.
B-16
<PAGE>
An exchange of Units pursuant to the Exchange Option for units of an Exchange
Trust will generally constitute a "taxable event" under the Code, i.e., a
Holder will recognize a gain or loss at the time of exchange. However, an
exchange of Units of this Trust for units of any other series of the Tax Exempt
Securities Trust which are grantor trusts for U.S. Federal income tax purposes
will not constitute a taxable event to the extent that the underlying
securities in each trust do not differ materially either in kind or in extent.
Unit holders are urged to consult their own tax advisors as to the tax
consequences to them of exchanging Units in particular cases.
Units of the Exchange Trust will be sold under the Exchange Option at the bid
prices of the underlying securities in the particular portfolio involved per
unit plus a fixed charge of $25 per unit. As an example, assume that a Unit
holder, who has three units of a trust with a current price of $1,020 per unit
based on the bid prices of the underlying securities, desires to exchange his
Units for units of a series of an Exchange Trust with a current price of $880
per unit based on the bid prices of the underlying securities. In this example,
the proceeds from the Unit holder's units will aggregate $3,060. Since only
whole units of an Exchange Trust may be purchased under the Exchange Option,
the Unit holder would be able to acquire four units in the Exchange Trust for a
total cost of $3,620 ($3,520 for the units and $100 for the sales charge).
REINVESTMENT PROGRAMS
Distributions of interest and principal, if any, are made to Unit holders
monthly. The Unit holder will have the option of either receiving his monthly
income check from the Trustee or participating in one of the reinvestment
programs offered by the Sponsor provided such Unit holder meets the minimum
qualifications of the reinvestment program and such program lawfully qualifies
for sale in the jurisdiction in which the Unit holder resides. Upon enrollment
in a reinvestment program, the Trustee will direct monthly interest
distributions and principal distributions, if any, to the reinvestment program
selected by the Unit holder. Since the Sponsor has arranged for different
reinvestment alternatives, Unit holders should contact the Sponsor for more
complete information, including charges and expenses. The appropriate
prospectus will be sent to the Unit holder. The Unit holder should read the
prospectus for a reinvestment program carefully before deciding to participate.
Participation in the reinvestment program will apply to all Units of a Trust
owned by a Unit holder and may be terminated at any time by the Unit holder, or
the program may be modified or terminated by the Trustee or the program's
Sponsor.
SPONSOR'S AND UNDERWRITERS' PROFITS
For their services the Underwriters (see Part A, "Underwriting") receive a
commission based on the sales charge of a particular Trust (see "Public
Offering--Offering Price") as adjusted pursuant to the Agreement Among
Underwriters. The Sponsor receives a gross commission equal to the applicable
sales charge for any Units they have underwritten, and receive the difference
between the applicable sales charge and the Underwriter's commission for the
remainder of the Units. In addition, the Sponsor may realize profits or sustain
losses, as the case may be, in the amount of any difference between the cost of
the Bonds to a Trust (which is based on the aggregate offering price of the
underlying Bonds on the Date of Deposit) and the purchase price of such Bonds
to the Sponsor (which is the cost of the Bonds at the time they were acquired
for the account of a Trust and the cost of the Deposited Units at the time they
were acquired by the Sponsor). (See Part A, "Portfolio of Securities"--Note
(3).) Under certain circumstances, an Underwriter may be entitled to share in
such profits, if any, realized by the Sponsor. The Sponsor may also realize
profits or sustain losses with respect to Bonds deposited in a Trust which were
acquired from its own organization or from underwriting syndicates of which it
was a member. During the initial public offering period the Underwriters also
may realize profits or sustain losses as a result of fluctuations after the
Date of Deposit in the offering prices of the Bonds and hence in the Public
Offering Price received by the Underwriters for Units. Cash, if any, made
available to the Sponsor prior to the anticipated first settlement date for the
purchase of Units may be used in the Sponsor's businesses to the extent
permitted by applicable regulations and may be of use to the Sponsor.
In maintaining a market for the Units of a Trust (see "Public Offering--
Market for Units"), the Sponsor will also realize profits or sustain losses in
the amount of any difference between the price at which they buy such Units and
the price at which they resell or redeem such Units (see "Public Offering--
Offering Price").
RIGHTS OF UNIT HOLDERS
CERTIFICATES
Ownership of Units of a Trust is evidenced by registered certificates
executed by the Trustee and the Sponsor. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed or accompanied by a
written instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit holder may be required to pay $2.00 per certificate reissued or
transferred, and to pay any governmental charge that may be imposed in
connection with each such transfer or
B-17
<PAGE>
interchange. For new certificates issued to replace destroyed, stolen or lost
certificates, the Unit holder must furnish indemnity satisfactory to the
Trustee and must pay such expenses as the Trustee may incur. Mutilated
certificates must be surrendered to the Trustee for replacement.
DISTRIBUTION OF INTEREST AND PRINCIPAL
Interest and principal received by a Trust will be distributed on each
monthly Distribution Date on a pro rata basis to Unit holders in such Trust of
record as of the preceding Record Date. All distributions will be net of
applicable expenses and funds required for the redemption of Units and, if
applicable, reimbursements to the Trustee for interest payments advanced to
Unit holders on previous Monthly Distribution Dates. (See Part A, "Summary of
Essential Information," "Tax Exempt Securities Trust--Expenses and Charges" and
"Rights of Unit Holders--Redemption of Units.")
The Trustee will credit to the Interest Account of a Trust all interest
received by such Trust, including that part of the proceeds of any disposition
of Bonds of such Trust which represents accrued interest. Other receipts will
be credited to the Principal Account of a Trust. The pro rata share of the
Interest Account and the pro rata share of cash in the Principal Account
represented by each Unit of a Trust will be computed by the Trustee each month
as of the Record Date. (See Part A, "Summary of Essential Information.")
Proceeds received from the disposition of any of the Bonds subsequent to a
Record Date and prior to the next succeeding Distribution Date will be held in
the Principal Account and will not be distributed until the following
Distribution Date. The distribution to the Unit holders as of each Record Date
will be made on the following Distribution Date or shortly thereafter and shall
consist of an amount substantially equal to one-twelfth of such holders' pro
rata share of the estimated annual income to the Interest Account after
deducting estimated expenses (the "Monthly Income Distribution") plus such
holders' pro rata share of the cash balance in the Principal Account computed
as of the close of business on the preceding Record Date. Persons who purchase
Units between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date following their purchase of Units.
No distribution need be made from the Principal Account if the balance therein
is less than an amount sufficient to distribute $1.00 per Unit. The Monthly
Income Distribution per Unit initially will be in the amount shown under Part
A, "Summary of Essential Information" for a Trust and will change as the income
and expenses of such Trust change and as Bonds are exchanged, redeemed, paid or
sold.
Normally, interest on the Bonds in the Portfolio of a Trust is paid on a
semi-annual basis. Because Bond interest is not received by a Trust at a
constant rate throughout the year, any Monthly Income Distribution may be more
or less than the amount credited to the Interest Account as of the Record Date.
In order to eliminate fluctuations in Monthly Income Distributions resulting
from such variances, the Trustee is required by the Trust Agreement to advance
such amounts as may be necessary to provide Monthly Income Distributions of
approximately equal amounts. The Trustee will be reimbursed, without interest,
for any such advances from funds available from the Interest Account on the
next ensuing Record Date or Record Dates, as the case may be. If all or a
portion of the Bonds for which advances have been made subsequently fail to pay
interest when due, the Trustee may recoup advances made by it in anticipation
of receipt of interest payments on such Bonds by reducing the amount
distributed per Unit in one or more Monthly Interest Distributions. If units
are redeemed subsequent to such advances by the Trustee, but prior to receipt
by the Trustee of actual notice of such failure to pay interest, the amount of
which was so advanced by the Trustee, each remaining Unit holder will be
subject to a greater pro rata reduction in his Monthly Interest Distribution
than would have occurred absent such redemptions. Funds which are available for
future distributions, payments of expenses and redemptions are in accounts
which are non-interest bearing to Unit holders and are available for use by
United States Trust Company of New York, pursuant to normal banking procedures.
The Trustee is entitled to the benefit of any reasonable cash balances in the
Income and Principal Accounts. Because of the varying interest payment dates of
the Bonds comprising a Trust Portfolio, accrued interest at any point in time
will be greater than the amount of interest actually received by a Trust and
distributed to Unit holders. This excess accrued but undistributed interest
amount will be added to the value of the units on any purchase made after the
Date of Deposit. If a Unit holder sells all or a portion of his Units a portion
of his sale proceeds will be allocable to his proportionate share of the
accrued interest. Similarly, if a Unit holder redeems all or a portion of his
Units, the Redemption Price per Unit which he is entitled to receive from the
Trustee will also include his accrued interest on the Bonds. (See "Rights of
Unit Holders--Redemption of Units--Computation of Redemption Price per Unit.")
The Trustee is also entitled to withdraw from the Interest Account, and to the
extent funds are not sufficient therein, from the Principal Account, on one or
more Record Dates as may be appropriate, amounts sufficient to recoup advances
which it has made in anticipation of the receipt by the Trust of interest in
respect of Bonds which subsequently fail to pay interest when due.
As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust and, to the extent funds are not sufficient therein, from
the Principal Account of such Trust, amounts necessary to pay the expenses of
such Trust. (See "Tax Exempt Securities Trust--Expenses and Charges.") The
Trustee also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any governmental charges payable out of a
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 account. In
B-18
<PAGE>
addition, the Trustee may withdraw from the Interest Account and the Principal
Account such amounts as may be necessary to cover redemption of Units by the
Trustee. (See "Rights of Unit Holders--Redemption of Units.")
The Trustee has agreed to advance to a Trust the amount of accrued interest
due on the Bonds of such Trust from their respective issue dates or previous
interest payment dates through the Date of Deposit. This accrued interest
amount will be paid to the Sponsor as the holder of record of all Units on the
first settlement date for the Units. Consequently, when the Sponsor sells Units
of a Trust, the amount of accrued interest to be added to the Public Offering
Price of the Units purchased by an investor will include only accrued interest
from the day after the Date of Deposit, to, but not including, the date of
settlement of the investor's purchase (normally five business days after
purchase), less any distributions from the Interest Account. The Trustee will
recover its advancements to a Trust (without interest or other cost to such
Trust) from interest received on the Bonds deposited in such Trust.
REPORTS AND RECORDS
The Trustee shall furnish Unit holders in connection with each distribution a
statement of the amount of interest, if any, and the amount of other receipts,
if any, which are being distributed, expressed in each case as a dollar amount
per Unit. In the event that the issuer of any of the Bonds fails to make
payment when due of any interest or principal and such failure results in a
change in the amount which would otherwise be distributed as a monthly
distribution, the Trustee will, with the first such distribution following such
failure, set forth in an accompanying statement, the issuer and the Bond, the
amount of the reduction in the distribution per Unit resulting from such
failure, the percentage of the aggregate principal amount of Bonds which such
Bond represents and, to the extent then determined, information regarding any
disposition or legal action with respect to such Bond. Within a reasonable time
after the end of each calendar year, the Trustee will furnish to each person
who at any time during the calendar year was a Unit holder of record, a
statement (1) as to the Interest Account: interest received (including amounts
representing interest received upon any disposition of Bonds), deductions for
payment of applicable taxes and for fees and expenses of a Trust, redemptions
of Units and the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day of such
calendar year; (2) as to the Principal Account: the dates of disposition of any
Bonds and the net proceeds received therefrom (excluding any portion
representing interest), deductions for payments of applicable taxes and for
fees and expenses of a Trust, redemptions of Units, and the balance remaining
after such distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (3) a list of the
Bonds held and the number of Units outstanding on the last business day of such
calendar year; (4) the Redemption Price per Unit based upon the last
computation thereof made during such calendar year; and (5) amounts actually
distributed during such calendar year from the Interest Account and from the
Principal Account, separately stated, expressed both as total dollar amounts
and as dollar amounts representing the pro rata share of each Unit outstanding.
The accounts of a Trust shall be audited not less frequently than annually by
independent auditors designated by the Sponsor, and the report of such auditors
shall be furnished by the Trustee to Unit holders upon request.
The Trustee shall keep available for inspection by Unit holders at all
reasonable times during usual business hours, books of record and account of
its transactions as Trustee including records of the names and addresses of
Unit holders, certificates issued or held, a current list of Bonds in the
Portfolio of a Trust and a copy of the Trust Agreement.
REDEMPTION OF UNITS
Units may be tendered to the Trustee for redemption at its unit investment
trust office at 770 Broadway, New York, New York 10003, upon payment of any
relevant tax. At the present time there are no specific taxes related to the
redemption of the Units. No redemption fee will be charged by the Sponsor or
the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer. Unit holders must sign exactly
as their name appears on the face of the certificate with the signature
guaranteed by an officer of a national bank or trust company or by a member of
either the New York, Midwest or Pacific Stock Exchange. In certain instances
the Trustee may require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or administrator
or certificates of corporate authority.
Within seven calendar days following such tender, the Unit holder will be
entitled to receive in cash an amount for each Unit tendered equal to the
Redemption Price per Unit computed as of the Evaluation Time set forth in the
"Summary of Essential Information" in Part A on the date of tender. (See
"Redemption of Units--Computation of Redemption Price per Unit.") The "date of
tender" is deemed to be the date on which Units are received by the Trustee,
except as regards Units received after the close of trading on the New York
Stock Exchange, the date of tender is the next day on which such Exchange is
open for trading, and such Units will be deemed
B-19
<PAGE>
to have been tendered to the Trustee on such day for redemption at the
Redemption Price computed on that day. For information relating to the purchase
by the Sponsor of Units tendered to the Trustee for redemption at prices in
excess of the Redemption Price, see "Redemption of Units--Purchase by the
Sponsor of Units Tendered for Redemption."
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal
Account. All other amounts paid on redemption shall be withdrawn from the
Principal Account. The Trustee is empowered to sell Bonds in order to make
funds available for redemption. Such sales, if required, could result in a sale
of Bonds by the Trustee at a loss. To the extent Bonds are sold, the size and
diversity of a Trust will be reduced.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or trading on that Exchange is restricted or during which (as
determined by the Securities and Exchange Commission) an emergency exists as a
result of which disposal or evaluation of the underlying Bonds is not
reasonably practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted.
COMPUTATION OF REDEMPTION PRICE PER UNIT--The Redemption Price per Unit of a
Trust is determined by the Trustee on the basis of the bid prices of the Bonds
in such Trust as of the Evaluation Time on the date any such determination is
made. The Redemption Price per Unit of a Trust is each Unit's pro rata share,
determined by the Trustee, of: (1) the aggregate value of the Bonds in such
Trust on the bid side of the market (determined by the Evaluator as set forth
below), (2) cash on hand in such Trust (other than funds covering contracts to
purchase Bonds), and accrued and unpaid interest on the Bonds as of the date of
computation, less (a) amounts representing taxes or governmental charges
payable out of such Trust, (b) the accrued expenses of such Trust, and (c) cash
held for distribution to Unit holders of such Trust of record as of a date
prior to the evaluation. The Evaluator may determine the value of the Bonds in
the Trust (1) on the basis of current bid prices for the Bonds, (2) if bid
prices are not available for any Bonds, on the basis of current bid prices for
comparable securities, (3) by appraisal, or (4) by any combination of the
above.
The difference between the bid and offering prices of the Bonds may be
expected to average approximately 1 1/2% of principal amount. In the case of
actively traded securities, the difference may be as little as 1/2 of 1%, and
in the case of inactively traded securities such difference usually will not
exceed 3%. The price at which Units may be redeemed could be less than the
price paid by the Unit holder. On the Date of Deposit for each Trust the
aggregate current offering price of such Bonds per Unit exceeded the bid price
of such Bonds per Unit by the amounts set forth under Part A, "Summary of
Essential Information."
PURCHASE BY THE SPONSOR OF UNITS TENDERED FOR REDEMPTION--The Trust Agreement
requires that the Trustee notify the Sponsor of any tender of Units for
redemption. So long as the Sponsor maintains a bid in the secondary market, the
Sponsor, prior to the close of business on the second succeeding business day,
will purchase any Units tendered to the Trustee for redemption at the price so
bid by making payment therefor to the Unit holder in an amount not less than
the Redemption Price not later than the day on which the Units would otherwise
have been redeemed by the Trustee. (See "Public Offering--Market for Units.")
The offering price of any Units resold by the Sponsor will be the Public
Offering Price determined in the manner provided in this Prospectus. (See
"Public Offering--Offering Price.") Any profit resulting from the resale of
such Units will belong to the Sponsor which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such Units. (See "Public Offering--Sponsor's and Underwriters'
Profits.")
SPONSOR
Smith Barney Inc., 1345 Avenue of the Americas, New York, New York 10105
("Smith Barney"), was incorporated in Delaware in 1960 and traces its history
through predecessor partnerships to 1873. Smith Barney, an investment banking
and securities broker-dealer firm, is a member of the New York Stock Exchange,
Inc. and other major securities and commodities exchanges, the National
Association of Securities Dealers, Inc. and the Securities Industry
Association. Smith Barney is an indirect wholly-owned subsidiary of The
Travelers Inc.
Smith Barney or an affiliate is investment adviser, principal underwriter or
distributor of thirty-three open-end investment companies and investment
manager of ten closed-end investment companies. Smith Barney also sponsors all
Series of Corporate Securities Trust, Government Securities Trust, Harris,
Upham Tax-Exempt Fund and Tax Exempt Securities Trust, and acts as sponsor of
most Series of Defined Assets Funds. The Sponsor has acted previously as
managing underwriter of other investment companies. In addition to
participating as a member of various underwriting and selling groups or as
agent of other investment companies, the Sponsor also executes orders for the
purchase and sale of securities of investment companies and sells securities to
such companies in its capacity as broker or dealer in securities.
B-20
<PAGE>
LIMITATIONS ON LIABILITY
The Sponsor is liable for the performance of its obligations arising from its
responsibilities under the Trust Agreement, but will be under no liability to
Unit holders for taking any action or refraining from any action in good faith
or for errors in judgment or responsible in any way for depreciation or loss
incurred by reason of the sale of any Bonds, except in cases of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. (See "Sponsor--Responsibility" below.)
RESPONSIBILITY
The Sponsor is empowered to direct the Trustee to dispose of Bonds when
certain events occur that adversely affect the value of the Bonds, including
default in payment of interest or principal, default in payment of interest or
principal on other obligations of the same issuer, institution of legal
proceedings, default under other documents adversely affecting debt service,
decline in price or the occurrence of other market or credit factors, or
decline in projected income pledged for debt service on revenue Bonds and
advanced refunding that, in the opinion of the Sponsor, may be detrimental to
the interests of the Unit holders.
The Sponsor intends to provide portfolio services for each Trust in order to
determine whether the Trustee should be directed to dispose of any such Bonds.
It is the responsibility of the Sponsor to instruct the Trustee to reject any
offer made by an issuer of any of the Bonds to issue new obligations in
exchange and substitution for any Bonds pursuant to a refunding or refinancing
plan, except that the Sponsor may instruct the Trustee to accept such an offer
or to take any other action with respect thereto as the Sponsor may deem proper
if the issuer is in default with respect to such Bonds or in the judgment of
the Sponsor the issuer will probably default in respect to such Bonds in the
foreseeable future.
Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Trust Agreement to the same
extent as Bonds originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Bonds, the
Trustee is required to give notice thereof to each Unit holder, identifying the
Bonds eliminated and the Bonds substituted therefor. Except as stated in this
and the preceding paragraph, the acquisition by a Trust of any securities other
than the Bonds initially deposited in the Trust is prohibited.
RESIGNATION
If the Sponsor resigns or otherwise fails or becomes unable to perform its
duties under the Trust Agreement, and no express provision is made for action
by the Trustee in such event, the Trustee may appoint a successor sponsor or
terminate the Trust Agreement and liquidate the Trusts.
TRUSTEE
The Trustee is United States Trust Company of New York, with its principal
place of business at 114 West 47th Street, New York, New York 10036. 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. In connection with
the storage and handling of certain Bonds deposited in the Trust, the Trustee
may use the services of The Depository Trust Company. These services may
include safekeeping of the Bonds and coupon-clipping, computer book-entry
transfer and institutional delivery services. The Depository Trust Company is a
limited purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System and a clearing agency
registered under the Securities Exchange Act of 1934.
LIMITATIONS ON LIABILITY
The Trustee shall not be liable or responsible in any way for depreciation or
loss incurred by reason of the disposition of any moneys, securities or
certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In addition, the Trustee shall not be personally liable
for any taxes or other governmental charges imposed upon or in respect of a
Trust which the Trustee may be required to pay under current or future law of
the United States or any other taxing authority having jurisdiction. (See "Tax
Exempt Securities Trust-- Portfolio.") For information relating to the
responsibilities and indemnification of the Trustee under the Trust Agreement,
reference is made to the material set forth under "Rights of Unit Holders",
"Sponsor--Resignation" and "Other Charges."
B-21
<PAGE>
RESIGNATION
By executing an instrument in writing and filing the same with the Sponsor,
the Trustee and any successor may resign. In such an event the Sponsor is
obligated to appoint a successor trustee as soon as possible. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over
by public authorities, the Sponsor may remove the Trustee and appoint a
successor as provided in the Trust Agreement. Such resignation or removal shall
become effective upon the acceptance of appointment by the successor trustee.
If no successor has accepted the appointment within thirty days after notice of
resignation, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of
a trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor trustee.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of J.J. Kenny Co.,
Inc., with main offices located at 65 Broadway, New York, New York 10006.
LIMITATIONS ON LIABILITY
The Trustee, Sponsor and Unit holders may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
Determination by the Evaluator under the Trust Agreement shall be made in good
faith upon the basis of the best information available to it; provided,
however, that the Evaluator shall be under no liability to the Trustee, the
Sponsor, or Unit holders for errors in judgment. But this provision shall not
protect the Evaluator in cases of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
RESPONSIBILITY
The Trust Agreement requires the Evaluator to evaluate the Bonds of a Trust
on the basis of their bid prices on the last business day of June and December
in each year, on the day on which any Unit of such Trust is tendered for
redemption and on any other day such evaluation is desired by the Trustee or is
requested by the Sponsor. For information relating to the responsibility of the
Evaluator to evaluate the Bonds on the basis of their offering prices, see
"Public Offering--Offering Price."
RESIGNATION
The Evaluator may resign or may be removed by the joint action of the Sponsor
and the Trustee, and in such event, the Sponsor and the Trustee are to use
their best efforts to appoint a satisfactory successor. Such resignation or
removal shall become effective upon the acceptance of appointment by a
successor evaluator. If upon resignation of the Evaluator no successor has
accepted appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor.
B-22
<PAGE>
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
AMENDMENT
The Sponsor and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit holders when such an amendment is (1) to
cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interests of the Unit holders; provided, that the Trust Agreement is
not amended to increase the number of Units issuable thereunder or to permit
the deposit or acquisition of securities either in addition to or in
substitution for any of the Bonds initially deposited in a Trust, except for
the substitution of certain refunding securities for such Bonds or to permit
the Trustee to engage in business or investment activities not specifically
authorized in the Trust Agreement as originally adopted. In the event of any
amendment, the Trustee is obligated to notify promptly all Unit holders of the
substance of such amendment.
TERMINATION
The Trust Agreement provides that if the principal amount of Bonds held in
Trust is less than 50% of the principal amount of the Bonds originally
deposited in such Trust, the Trustee may in its discretion and will, when
directed by the Sponsor, terminate such Trust. A Trust may be terminated at any
time by 100% of the Unit holders. However, in no event may a Trust continue
beyond the Mandatory Termination Date set forth under Part A, "Summary of
Essential Information." In the event of termination, written notice thereof
will be sent by the Trustee to all Unit holders. Within a reasonable period
after termination, the Trustee will sell any Bonds remaining in the affected
Trust, and, after paying all expenses and charges incurred by such Trust, will
distribute to each Unit holder, upon surrender for cancellation of his
certificate for Units, his pro rata share of the balances remaining in the
Interest and Principal Account of such Trust.
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell, 450
Lexington Avenue, New York, New York 10017, as special counsel for the Sponsor.
AUDITORS
The statements of financial condition and the portfolios of securities
included in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent auditors, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
BOND RATINGS+
All ratings shown under Part A, "Portfolio of Securities", except those
identified otherwise, are by Standard & Poor's.
STANDARD & POOR'S
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation; and
- -------
+As described by the rating agencies.
B-23
<PAGE>
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal, and in the majority of instances they differ from AAA issues only in
small degrees.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher-rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher-rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "BB" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" following a rating indicates the rating
is provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.
Conditional rating(s), indicated by "Con" are given to bonds for which the
continuance of the security rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows and/or the security rating is conditional upon the
issuance of insurance by the respective insurance company.
MOODY'S
A brief description of the applicable Moody's rating symbols and their
meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. Aa bonds are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers "1," "2," or "3." The
numerical modifier "1" indicates that the security ranks at the high end, "2"
in the mid-range, and "3" nearer the low end of the generic category. These
modifiers of rating symbols "Aa," "A" and "Baa" are to give investors a more
precise indication of relative debt quality in each of the historically defined
categories.
FITCH
AAA--These bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--These bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong,
is somewhat less than for AAA rated securities or more subject to possible
change over the term of the issue.
B-24
<PAGE>
A--These bonds are considered to be investment grade and of good quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--These bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however are more likely to weaken this ability than bonds with
higher ratings.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
DUFF & PHELPS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
FEDERAL TAX FREE VS. TAXABLE INCOME
This table shows the approximate yields which taxable securities must earn
in various income brackets to produce, after Federal income tax, returns
equivalent to specified tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the
entire amount of any increase or decrease in his or her taxable income
resulting from a switch from taxable to tax-exempt securities or vice versa.
The table reflects projected Federal income tax rates and the tax brackets for
the 1995 taxable year. Because the Federal rate brackets are subject to
adjustment based on changes in the Consumer Price Index, the taxable
equivalent yields for subsequent years may vary somewhat from those indicated
in the table. Use this table to find your tax bracket. Read across to
determine the approximate taxable yield you would need to equal a return free
of Federal income tax.
1995 TAX YEAR
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE INCOME BRACKET* TAX EXEMPT YIELD
FEDERAL
JOINT RETURN SINGLE RETURN TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
TAXABLE EQUIVALENT YIELD
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-$39,000 $0-$23,350 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
$ 39,001- 94,250 $ 23,350- 56,550 28.00% 5.56 6.25 6.94 7.64 8.33 9.03 9.72 10.42 11.11
$ 94,251-114,700 $ 56,551-114,700 31.00% 5.80 6.52 7.25 7.97 8.70 9.42 10.14 10.87 11.59
$114,701-143,600 $114,701-117,950 31.00% 5.80 6.61 7.35 8.08 8.81 9.55 10.28 11.02 11.75
$143,601-256,500 $117,951-256,500 36.00% 6.36 7.15 7.95 8.74 9.54 10.33 11.13 11.92 12.71
OVER $256,500 OVER $256,500 39.60% 6.76 7.60 8.44 9.29 10.13 10.98 11.82 12.67 13.51
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Note: This table reflects the following:
1 Taxable income equals adjusted gross income less personal exemptions of
$2,500 less the standard deduction of $6,550 on a joint or total itemized
deductions, whichever is greater. However under the provisions of the
Omnibus Budget Reconciliation Act of 1990, itemized deductions are reduced
by 3% of the amount of a taxpayer's AGI over $114,700. This is reflected in
the brackets above by higher effective federal tax rates. Furthermore,
personal exemptions are phased out for the amount of a taxpayer's AGI over
$114,700 for single taxpayers and $172,050 for married taxpayers filing
jointly. This latter provision is not incorporated into the above brackets.
2 The combined effective rate is computed under the assumption that
taxpayers itemize their deductions on their federal tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated within
each bracket.
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PROSPECTUS--PART C:
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NOTE: PART C OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PARTS A AND B.
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TAX EXEMPT SECURITIES TRUST--THE STATE TRUSTS
Potential purchasers of the Units of a State Trust should consider the fact
that the Trust's Portfolio consists primarily of Bonds issued by the state for
which such State Trust is named or its municipalities or authorities and
realize the substantial risks associated with an investment in such Bonds. Each
State Trust is subject to certain additional risk factors. The Sponsor believes
the discussions of risk factors summarized below describe some of the more
significant aspects of the State Trusts. The sources of such information are
the official statements of issuers as well as other publicly available
documents. While the Sponsor has not independently verified this information,
it has no reason to believe that such information is not correct in all
material respects. Investment in a State Trust should be made with an
understanding that the value of the underlying Portfolio may decline with
increases in interest rates.
CONNECTICUT TRUST
STATE RISK FACTORS
Potential purchasers of the Units of the Connecticut Trust should consider
the fact that the Trust's Portfolio consists primarily of Bonds issued by the
State of Connecticut (the "State") or its municipalities or authorities, and
realize the substantial risks associated with an investment in such Bonds.
Connecticut's manufacturing industry has historically been of prime economic
importance to Connecticut. The manufacturing industry is diversified, with
transportation equipment (primarily aircraft engines, helicopters and
submarines) dominant, followed by fabricated metal products, non-electrical
machinery and electrical machinery. From 1970 to 1993, however, there was a
rise in employment in service-related industries. During this period,
manufacturing employment declined 33.5%, while employment in other non-
agricultural establishments (including government) increased 63.3%,
particularly in the service, trade and finance categories. In 1993,
manufacturing accounted for only 19.2% of total non-agricultural employment in
Connecticut. Defense-related business plays an important role in the
Connecticut economy. On a per capita basis, defense awards to Connecticut have
traditionally been among the highest in the nation. Reductions in defense
spending have had a substantial adverse impact on Connecticut's economy.
Moreover, the State's largest defense contractors have announced substantial
labor force reductions scheduled to occur over the next four years.
The annual average unemployment rate (seasonally adjusted) in Connecticut
decreased from 6.9% in 1982 to a low of 3.0% in 1988 but rose to 6.6% in 1993.
While these rates were lower than those recorded for the U.S. as a whole for
the same periods, as of May, 1993, the estimated rate of unemployment in
Connecticut on a seasonally adjusted basis was 7.4%, compared to only 6.9% for
the United States as a whole, and pockets of significant unemployment and
poverty exist in some of Connecticut's cities and towns. Moreover, Connecticut
is now in a recession the depth and duration of which is uncertain.
The State derives over seventy percent of its revenues from taxes imposed by
the State. The two major taxes have been the sales and use taxes and the
corporation business tax, each of which is sensitive to changes in the level of
economic activity in the State, but the Connecticut income tax on individuals.
trusts, and estates enacted in 1991 has superseded each of them in importance.
The State's General Fund budget for fiscal year 1986-87 (ending June 30)
anticipated appropriations and revenues of approximately $4,300,000,000. The
General Fund ended fiscal year 1986-87 with a surplus of $365,200,000. The
General Fund budget for fiscal year 1987-88 anticipated appropriations and
revenues of approximately $4,915,800,000. However, the General Fund ended
fiscal year 1987-88 with a deficit of approximately $115.6 million. The General
Fund budget for fiscal year 1988-89 anticipated that General Fund expenditures
of $5,551,000,000 and certain educational expenses of $206,700,000 not
previously paid through the General Fund would be financed in part from
surpluses of prior years and in part from higher tax revenues projected to
result from tax laws in effect for fiscal year 1987-88 and stricter enforcement
thereof; a substantial deficit was projected during the third quarter of fiscal
year 1988-89, but, largely because of tax law changes that took effect before
the end of the fiscal year, the deficit was kept to $28,000,000. The General
Fund budget for fiscal year 1989-90 anticipated appropriations of approximately
$6,224,500,000 and, by virtue of tax increases enacted to take effect generally
at the beginning of the fiscal year, revenues slightly exceeding such amount.
However, largely because of tax revenue shortfalls, the General Fund ended
fiscal year 1989-90 with a deficit for the year of $259,000,000, wiping out
reserves for such events built up in prior years. The General Fund budget for
fiscal year 1990-91 anticipated expenditures of $6,443,000,000, but no
significant new or
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increased taxes were enacted. Primarily because of significant declines in tax
revenues and unanticipated expenditures reflective of economic adversity, the
General Fund ended fiscal year 1990-91 alone with a further deficit of
$809,000,000.
A General Fund budget was not enacted for fiscal year 1991-92 until August
22, 1991. This budget anticipated General Fund expenditures of $7,007,861,328
and revenues of $7,426,390,000. Anticipated decreases in revenues resulting
from a 25% reduction in the sales tax rate effective October 1, 1991, the
repeal of the taxes on the capital gains and interest and dividend income of
resident individuals for years starting after 1991, and the phase-out of the
corporation business tax surcharge over two years commencing with years
starting after 1991 were expected to be more than offset by a new general
income tax imposed at effective rates not to exceed 4.5% on the Connecticut
taxable income of resident and non-resident individuals, trusts, and estates.
The General fund ended fiscal year 1991-1992 with an operating surplus of
$110,000,000. The General Fund budget for fiscal year 1992-93 anticipated
General Fund expenditures of $7,372,062,859 and revenues of $7,372,210,000 and
the General Fund ended fiscal year 1992-1993 with an operating surplus of
$113,500,000. Balanced General Fund budgets for the biennium ending June 30,
1995, were adopted in 1993 appropriating expenditures of $7,828,900,000 for
fiscal year 1993-94 and $8,266,000,000 for fiscal year 1994-95. The General
Fund ended fiscal year 1993-94 with an operating surplus of $19,700,000. In
1994 the budgeted General Fund expenditures for fiscal year 1994-95 were
increased to $8,567,200,000.
The primary method for financing capital projects by the State is through the
sale of the general obligation bonds of the State. These bonds are backed by
the full faith and credit of the State. As of November 1, 1994, there was a
total legislatively authorized bond indebtedness of $10,179,811,925, of which
$8,431,752,734 had been approved for issuance by the State Bond Commission and
$7,190,061,163 had been issued.
To fund operating cash requirements, prior to fiscal year 1991-92 the State
borrowed up to $750,000,000 pursuant to authorization to issue commercial
paper, and on July 29, 1991, it issued $200,000,000 General Obligation
Temporary Notes, none of which temporary borrowings were outstanding as July 1,
1993, To fund the cumulative General Fund deficit for fiscal years 1989-90 and
1990-91, the legislation enacted August 22, 1991, authorized the State
Treasurer to issue Economic Recovery Notes up to the aggregate amount of such
deficit, which must be payable no later than June 30, 1996; at least
$50,000,000 of such Notes, but not more than a cap amount, is to be retired
each fiscal year commencing with fiscal year 1991-92, and any unappropriated
surplus up to $205,000,000 in the General Fund at the end of each of the three
fiscal years commencing with fiscal year 1991-92 must be applied to retire such
Notes as may remain outstanding at those times. On September 25, 1991, and
October 24, 1991, the State issued $640,710,000 and $325, 002,000,
respectively, of such Economic Recovery Notes, of which $555,610,000 were
outstanding as of November 1, 1994.
To meet the need for reconstructing, repairing, rehabilitating and improving
the State transportation system (except Bradley International Airport), the
State adopted legislation which provides for, among other things, the issuance
of special tax obligation ("STO") bonds the proceeds of which will be used to
pay for improvements of the State's transportation system. The STO bonds are
special tax obligations of the State payable solely from specified motor fuel
taxes, motor vehicle receipts, and license, permit and fee revenues pledged
therefor and deposited in the special transportation fund. The cost of the
infrastructure program for the twelve years beginning in 1984, to be met from
federal, state and local funds, is currently estimated at $9.4 billion. To
finance a portion of the State's $4.1 billion share of such cost, the State
expects to issue $3.7 billion STO bonds over the twelve-year period.
As of November 1, 1994, the General Assembly has authorized STO bonds for the
program in the aggregate amount of $3,794,938,104, of which $3,144,650,752 had
been issued. It is anticipated that additional STO bonds will be authorized by
the General Assembly annually in an amount necessary to finance and to complete
the infrastructure program. Such additional bonds may have equal rank with the
outstanding bonds provided certain pledged revenue coverage requirements of the
STO indenture controlling the issuance of such bonds are met. The State expects
to continue to offer bonds for this program.
The State, its officers and employees are defendants in numerous lawsuits.
According to the Attorney General's office, an adverse decision in any of the
cases which are summarized herein could materially affect the State's financial
position (i) litigation on behalf of black and hispanic children in the City of
Hartford seeking "integrated education" within the greater Hartford
metropolitan area; (ii) litigation involving claims by Indians tribes to
portions of the State's land area; (iii) litigation challenging the State's
method of financing elementary and secondary public schools on the ground that
it denies equal access to education; (iv) an action in which two retarded
persons seek placement outside a State hospital, new programs and damages on
behalf of themselves and all mentally retarded patients at the hospital; (v)
litigation involving claims for refunds of taxes by several cable television
companies; (vi) an action on behalf of all persons with retardation or
traumatic brain injury, claiming that their constitutional rights are violated
by placement in State hospitals alleged not to provide adequate treatment and
training, and seeking placement in community residential settings with
appropriate support services; (vii) an action by the Connecticut Hospital
Association and 33 hospitals seeking to require the State to reimburse
hospitals for in-patient medical services on a basis more favorable to them;
(viii) a class action by the Connecticut Criminal Defense Lawyers Association
claiming a campaign of illegal surveillance activity and seeking damages and
injunctive relief; (ix) two actions for monetary
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damages brought by a former patient of a State mental hospital stemming from an
attempted suicide that left her brain-damaged; (x) an action challenging the
validity of the State's imposition of surcharges on hospital charges to finance
certain uncompensated care costs incurred by hospitals; (xi) an action to
enforce the spending cap provision of the State's constitution by seeking to
require that the General Assembly define certain terms used therein and to
enjoin certain increases in "general budget expenditures" until this is done;
and (xii) an action challenging the validity of the State's imposition of gross
earnings taxes on hospital revenues to finance certain uncompensated care
costs; and (xiii) an action by inmates of the Department of Correction seeking
damages and injunctive relief with respect to alleged violations of statutory
and constitutional rights as a result of the monitoring and recording of their
telephones from the State's correctional institutions. In addition, a number of
corporate taxpayers have filed refund requests for corporation business tax
asserting that interest on federal obligations may not be included in the
measure of that tax, alleging that to do so violates federal law because
interest on certain State of Connecticut obligations is not included in the
measure of the tax.
As a result of the State's budget problems, the ratings of its general
obligation bonds were reduced by Standard & Poor's from AA+ to AA on March 29,
1990, and by Moody's from Aa1 to Aa on April 9, 1990. Because of concerns over
Connecticut's lack of a plan to deal with the accumulated projected deficits in
its General Fund, on September 13, 1991, Standard & Poor's reduced its ratings
of the State's general obligation bonds and certain other obligations that
depend in part on the creditworthiness of the State to AA-. On March 7, 1991,
Moody's downgraded its ratings of the revenue bonds of four Connecticut
hospitals because of the effects of the State's restrictive controlled
reimbursement environment under which they have been operating.
General obligation bonds issued by Connecticut municipalities are payable
primarily only from ad valorem taxes on property subject to taxation by the
municipality. Certain Connecticut municipalities have experienced severe fiscal
difficulties and have reported operating and accumulated deficits in recent
years. The most notable of them is the City of Bridgeport, which filed a
bankruptcy petition on June 7, 1991. The State opposed the petition. The United
States Bankruptcy Court for the District of Connecticut has held that
Bridgeport had authority to file such a petition but that its petition should
be dismissed on the grounds that Bridgeport was not insolvent when the petition
was filed. Regional economic difficulties, reductions in revenues, and
increased expenses could lead to further fiscal problems for the State and its
political subdivisions, authorities, and agencies. This could result in
declines in the value of their outstanding obligations, increases in their
future borrowing costs, and impairment of their ability to pay debt service on
their obligations.
It is the Sponsors' intention to qualify and/or offer the Units of the
Connecticut Trust for sale only in the States of Connecticut, Hawaii, New
Jersey and Wyoming and in the District of Columbia.
CONNECTICUT TAXES
In the opinion of Messrs. Day, Berry and Howard, special Connecticut counsel
on Connecticut tax matters, which is based explicitly on the opinion of Messrs.
Davis, Polk & Wardwell regarding Federal income tax matters, under existing
Connecticut law:
The Connecticut Trust is not liable for any tax on or measured by net
income imposed by the State of Connecticut;
Interest income of the Connecticut Trust from obligations issued by or on
behalf of the State of Connecticut, any political subdivision thereof, or
public instrumentality, state or local authority, district, or similar
public entity created under the laws of the State of Connecticut (a
"Connecticut Bond") or from obligations of United States territories or
possessions and their public authorities the interest on which Federal law
would prohibit Connecticut from taxing if received directly by a Unit
holder from the issuer thereof is not taxable under the Connecticut tax on
the Connecticut taxable income of individuals, trusts, and estates (the
"Connecticut Income Tax"), either when received by the Connecticut Trust or
when distributed by it to the Unit holder;
Interest income of the Connecticut Trust from Connecticut Bonds, or from
obligations of United States territories or possessions the interest on
which Federal law would prohibit Connecticut from taxing if received
directly by a Unit holder from the issuer thereof, that is includable in
Federal alternative minimum taxable income as an item of tax preference is
not taxable under the net Connecticut minimum tax imposed on taxpayers
subject to the Connecticut Income Tax and required to pay the Federal
alternative minimum tax, either when received by the Connecticut Trust or
when distributed by it to the Unit holder;
Gains and losses recognized by a Unit holder for Federal income tax
purposes upon the maturity, redemption, sale, or other disposition by the
Connecticut Trust of an obligation held by the Connecticut Trust or upon
the redemption, sale, or other disposition of a Unit of the Connecticut
Trust held by a Unit holder are taken into account as gains or losses,
respectively, for purposes of the Connecticut Income Tax, except that, in
the case of a Unit holder holding a Unit of the Connecticut Trust as a
capital asset, such gains and losses recognized upon the maturity,
redemption, sale, or exchange of a Connecticut Bond held by the Connecticut
Trust are excluded from gains and losses taken into account for purposes of
such tax and no opinion is expressed as to the treatment. To the extent
attributable to Connecticut Bonds, of gains and losses recognized upon the
redemption, sale, or other disposition by a Unit holder of a Unit of the
Connecticut Trust held by him;
The portion of any interest income or capital gain of the Connecticut
Trust that is allocable to a Unit holder that is subject to the Connecticut
corporation business tax is includable in the gross income of such Unit
holder for purposes of such tax; and
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An interest in a Unit of the Connecticut Trust that is owned by or
attributable to a Connecticut resident at the time of his death is
includable in his gross estate for purposes of the Connecticut succession
tax and the Connecticut estate tax.
The Connecticut Income Tax was enacted in August 1991. Generally, under this
tax as enacted, a Unit holder recognizes gain or loss upon the maturity,
redemption, sale, or other disposition by the Connecticut Trust of an
obligation held by it, or upon the redemption, sale, or other disposition of a
Unit of the Connecticut Trust held by the Unit holder, to the same extent that
gain or loss is recognized by the Unit holder thereupon for Federal income tax
purposes. However, on June 19, 1992, Connecticut legislation was adopted that
provides that gains and losses from the sale or exchange of Connecticut Bonds
held as capital assets will not be taken into account for purposes of the
Connecticut Income Tax for taxable years starting on or after January 1, 1992.
Regulations effective for taxable years starting on or after January 1, 1994,
clarify that this provision also applies to gain or loss recognized by a Unit
holder upon the maturity or redemption of a Connecticut Bond held by the
Connecticut Trust. However, it is not clear whether this provision would apply
to the extent attributable to Connecticut Bonds held by the Connecticut Trust,
to gain or loss recognized by a Unit holder upon the redemption, sale, or other
disposition of a Unit of the Connecticut Trust held by the Unit holder.
Unit holders are urged to consult their own tax advisors concerning these
matters.
MARYLAND TRUST
RISK FACTORS--The Public indebtedness of the State of Maryland (the "State")
and its instrumentalities is divided into three general types. The State issues
general obligation bonds for capital improvements and for various State
projects to the payment of which the State ad valorem property tax is
exclusively pledged. In addition, the Maryland Department of Transportation
issues for transportation purposes its limited, special obligation bonds
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities issue obligations payable
solely from specific non-tax, enterprise fund revenues and for which the State
has no liability and has given no moral obligation assurance.
General obligation bonds of the State are authorized and issued primarily to
provide funds for State-owned capital improvements, including institutions of
higher learning, and the construction of locally owned public schools. Bonds
have also been issued for local government improvements, including grants and
loans for water quality improvement projects and correctional facilities, to
provide funds for repayable loans or outright grants to private, non-profit
cultural or educational institutions, and to fund certain loan and grant
programs.
The Maryland Constitution prohibits the contracting of State debt unless it
is authorized by a law levying an annual tax or taxes sufficient to pay the
debt service within 15 years and prohibiting the repeal of the tax or taxes or
their use for another purpose until the debt is paid. As a uniform practice,
each separate enabling act which authorizes the issuance of general obligation
bonds for a given object or purpose has specifically levied and directed the
collection of an ad valorem property tax on all taxable property in the State.
The Board of Public Works is directed by law to fix by May 1 of each year the
precise rate of such tax necessary to produce revenue sufficient for debt
service requirements of the next fiscal year, which begins July 1. However, the
taxes levied need not be collected if or to the extent that funds sufficient
for debt service requirements in the next fiscal year have been appropriated in
the annual State budget. Accordingly, the Board, in annually fixing the rate of
property tax after the end of the regular legislative session in April, takes
account of appropriations of general funds for debt service.
In the opinion of counsel, the courts of Maryland have jurisdiction to
entertain proceedings and power to grant mandatory injunctive relief to (i)
require the Governor to include in the annual budget a sufficient appropriation
to pay all general obligation bond debt service for the ensuing fiscal year;
(ii) prohibit the General Assembly from taking action to reduce any such
appropriation below the level required for that debt service; (iii) require the
Board of Public Works to fix and collect a tax on all property in the State
subject to assessment for State tax purposes at a rate and in an amount
sufficient to make such payments to the extent that adequate funds are not
provided in the annual budget; and (iv) provide such other relief as might be
necessary to enforce the collection of such taxes and payment of the proceeds
of the tax collection to the holders of general obligation bonds, pari passu,
subject to the inherent constitutional limitations referred to below.
It is also the opinion of counsel that, while the mandatory injunctive
remedies would be available and while the general obligation bonds of the State
are entitled to constitutional protection against the impairment of the
obligation of contracts, such constitutional protection and the enforcement of
such remedies would not be absolute. Enforcement of a claim for payment of the
principal of or interest on the bonds could be subject to the provisions of any
statutes that may be constitutionally enacted by the United States Congress or
the Maryland General Assembly extending the time for payment or imposing other
constraints upon enforcement.
There is no general debt limit imposed by the Maryland Constitution or public
general laws, but a special committee created by statute annually submits to
the Governor an estimate of the maximum amount of new general obligation debt
that prudently may be
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authorized. Although the committee's responsibilities are advisory only, the
Governor is required to give due consideration to the committee's findings in
preparing a preliminary allocation of new general debt authorization for the
next ensuing fiscal year.
Consolidated Transportation Bonds are limited obligations issued by the
Maryland Department of Transportation, the principal of which must be paid
within 15 years from the date of issue, for highway, port, transit, rail or
aviation facilities or any combination of such facilities. Debt service on
Consolidated Transportation Bonds is payable from those portions of the excise
tax on each gallon of motor vehicle fuel and the motor vehicle titling tax, all
mandatory motor vehicle registration fees, motor carrier fees, and the
corporate income tax as are credited to the Maryland Department of
Transportation, plus all departmental operating revenues and receipts. Holders
of such bonds are not entitled to look to other sources for payment.
The Maryland Department of Transportation also issues its bonds to provide
financing of local road construction and various other county transportation
projects and facilities. Debt service on these bonds is payable from the
subdivisions' share of highway user revenues held to their credit in a special
State fund.
The Maryland Transportation Authority operates certain highway, bridge and
tunnel toll facilities in the State. The tolls and other revenues received from
these facilities are pledged as security for revenue bonds of the Authority
issued under and secured by a trust agreement between the Authority and a
corporate trustee.
Certain other instrumentalities of the State government are authorized to
borrow money under legislation which expressly provides that the loan
obligations shall not be deemed to constitute a debt or a pledge of the faith
and credit of the State. The Community Development Administration of the
Department of Housing and Community Development, the Board of Trustees of St.
Mary's College of Maryland, the Maryland Environmental Service, the Board of
Regents of the University of Maryland System, the Board of Regents of Morgan
State University, and the Maryland Food Center Authority have issued and have
outstanding bonds of this type. The principal of and interest on bonds issued
by these bodies are payable solely from various sources, principally fees
generated from use of the facilities or enterprises financed by the bonds.
Under a Comprehensive Plan of Financing, as amended, of the Maryland Stadium
Authority, the Authority is authorized to finance the acquisition and
construction of sports facilities at a site within the City of Baltimore. Under
the Plan of Financing, the Authority has engaged in a series of borrowings,
together with certain equity contributions, to finance acquisition of the site,
construction of a baseball stadium and ancillary facilities, and, if a lease
agreement is executed between the Authority and a professional football
franchise, proposes to finance the construction of a football stadium.
The Authority's financings as well as any future financings for a football
stadium are lease-backed revenue obligations, payment of which is secured by,
among other things, an assignment of revenues to be received under a lease of
the sports facilities from the Authority to the State of Maryland; rental
payments due from the State under that lease will be subject to annual
appropriation by the Maryland General Assembly. The State anticipates that
revenues to fund the lease payments will be generated from a variety of
sources, including in each year sports lottery revenues, the net operating
revenues of the Authority and funds from the City of Baltimore.
The Water Quality Revolving Loan Fund is administered by the Water Quality
Financing Administration in the Department of the Environment. The Fund may be
used to provide loans, subsidies and other forms of financial assistance to
local government units for wastewater treatment projects as contemplated by the
1987 amendments to the federal Water Pollution Control Act. The Administration
is authorized to issue bonds secured by revenues of the Fund, including loan
repayments, federal capitalization grants, and matching State grants.
The University of Maryland System, Morgan State University, and St. Mary's
College of Maryland are authorized to issue revenue bonds for the purpose of
financing academic and auxiliary facilities. Auxiliary facilities are any
facilities that furnish a service to students, faculty, or staff, and that
generate income. Auxiliary facilities include housing, eating, recreational,
campus, infirmary, parking, athletic, student union or activity, research
laboratory, testing, and any related facilities.
On August 7, 1989, the Governor issued an Executive Order assigning to the
Department of Budget and Fiscal Planning responsibility to review certain
proposed issuances of revenue and enterprise debt other than private activity
bonds. The Executive Order also provides that the Governor may establish a
ceiling of such debt to be issued during the fiscal year, which ceiling may be
amended by the Governor.
Although the State has authority to make short-term borrowings in
anticipation of taxes and other receipts up to a maximum of $100 million, in
the past it has not issued short-term tax anticipation and bond anticipation
notes or made any other similar short-term borrowings. However, the State has
issued certain obligations in the nature of bond anticipation notes for the
purpose of assisting several
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savings and loan associations in qualifying for Federal insurance and in
connection with the assumption by a bank of the deposit liabilities of an
insolvent savings and loan association.
The State has financed the construction and acquisition of various facilities
through conditional purchase, sale-leaseback, and similar transactions. All of
the lease payments under these arrangements are subject to annual appropriation
by the Maryland General Assembly. In the event that appropriations are not
made, the State may not be held contractually liable for the payments.
SAVINGS AND LOAN MATTERS. During the first half of calendar year 1985,
several State-chartered savings and loan associations, the savings accounts of
which were privately insured, experienced unusually heavy withdrawals of funds
by depositors. The resulting decline in the associations' liquid assets led to
the appointment of receivers for the assets of six associations and the
creation of an agency of the State to succeed, by statutory merger, the private
insurer. The savings accounts of all savings and loan associations operating in
the State of Maryland must be insured by either the State agency or the Federal
Savings and Loan Insurance Corporation. The State agency assumed the insurance
liabilities of the private insurance agency with respect to deposits made prior
to May 18, 1985, and insures amounts deposited after that date up to a certain
limit. The legislation establishing the insurance agency provides that "It is
the policy of this State that funds will be appropriated to the [insurance
agency] to the extent necessary to protect holders of savings accounts in
member associations." As of December 31, 1989, depositors of all non-disputed
insured accounts at associations in receivership have been paid in full. The
insurance agency believes that the allowance for estimated insurance losses
will be sufficient to provide for the agency's ultimate liability.
LOCAL SUBDIVISION DEBT. The counties and incorporated municipalities in
Maryland issue general obligation debt for general governmental purposes. The
general obligation debt of the counties and incorporated municipalities is
generally supported by ad valorem taxes on real estate, tangible personal
property and intangible personal property subject to taxation. The issuer
typically pledges its full faith and credit and unlimited taxing power to the
prompt payment of the maturing principal and interest on the general obligation
debt and to the levy and collection of the ad valorem taxes as and when such
taxes become necessary in order to provide sufficient funds to meet the debt
service requirements. The amount of debt which may be authorized may in some
cases be limited by the requirement that it not exceed a stated percentage of
the assessable base upon which such taxes are levied.
In the opinion of counsel, the issuer may be sued in the event that it fails
to perform its obligations under the general obligation debt to the holders of
the debt, and any judgments resulting from such suits would be enforceable
against the issuer. Nevertheless, a holder of the debt who has obtained any
such judgment may be required to seek additional relief to compel the issuer to
levy and collect such taxes as may be necessary to provide the funds from which
a judgment may be paid. Although there is no Maryland law on this point, it is
the opinion of counsel that the appropriate courts of Maryland have
jurisdiction to entertain proceedings and power to grant additional relief,
such as a mandatory injunction, if necessary, to enforce the levy and
collection of such taxes and payment of the proceeds of the collection of the
taxes to the holders of general obligation debt, pari passu, subject to the
same constitutional limitations on enforcement, as described above, as apply to
the enforcement of judgments against the State.
Local subdivisions, including counties and municipal corporations, are also
authorized by law to issue special and limited obligation debt for certain
purposes other than general governmental purposes. The source of payment of
that debt is limited to certain revenues of the issuer derived from commercial
activities operated by the issuer, payments made with respect to certain
facilities or loans, and any funds pledged for the benefit of the holders of
the debt. That special and limited obligation debt does not constitute a debt
of the State, the issuer or any other political subdivision of either within
the meaning of any constitutional or statutory limitation. Neither the State
nor the issuer or any other political subdivision of either is obligated to pay
the debt or the interest on the debt except from the revenues of the issuer
specifically pledged to the payment of the debt. Neither the faith and credit
nor the taxing power of the State, the issuer or any other political
subdivision of either is pledged to the payment of the debt. The issuance of
the debt is not directly or indirectly or contingently an obligation, moral or
other, of the State, the issuer or any other political subdivision of either to
levy any tax for its payment.
WASHINGTON SUBURBAN SANITARY DISTRICT DEBT. The Washington Suburban Sanitary
District operates as a public corporation of the State to provide, as
authorized, water, sewerage and drainage systems, including water supply,
sewage disposal, and storm water drainage facilities for Montgomery County,
Maryland and Prince George's County, Maryland. For the purpose of paying the
principal of and interest on bonds of the District, Maryland law provides for
the levy, annually, against all the assessable property within the District by
the County Council of Montgomery County and the County Council of Prince
George's County of ad valorem taxes sufficient to pay such principal and
interest when due and payable.
Storm water drainage bonds for specific projects are payable from an ad
valorem tax upon all of the property assessed for county tax purposes within
the portion of the District situated in the county in which the storm water
project was, or is to be, constructed.
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Storm water drainage bonds of the District are also guaranteed by such county,
which guaranty operates as a pledge of the full faith and credit of the county
to the payment of the bonds and obligates the county council, to the extent
that the tax revenues referred to above and any other money available or to
become available are inadequate to provide the funds necessary to pay the
principal of and the interest on the bonds, to levy upon all property subject
to taxation within the county ad valorem taxes in rate and in amount sufficient
to make up any such deficiency.
Substantially all of the debt service on the bonds, except storm water
drainage bonds, is being paid from revenues derived by the District from water
consumption charges, front foot benefit charges, and sewage usage charges.
Notwithstanding the payment of principal of and interest on those bonds from
those charges, the underlying security of all bonds of the District is the levy
of ad valorem taxes on the assessable property as stated above.
SPECIAL AUTHORITY DEBT. The State and local governments have created several
special authorities with the power to issue debt on behalf of the State or
local government for specific purposes, such as providing facilities for non-
profit health care and higher educational institutions, facilities for the
disposal of solid waste, funds to finance single family and low-to-moderate
income housing, and similar purposes. The Maryland Health and Higher
Educational Facilities Authority, the Northeast Maryland Waste Disposal
Authority, the Housing Opportunities Commission of Montgomery County, and the
Housing Authority of Prince George's County are some of the special authorities
which have issued and have outstanding debt of this type.
The debts of the authorities issuing debt on behalf of the State and the
local governments are limited obligations of the authorities payable solely
from and secured by a pledge of the revenues derived from the facilities or
loans financed with the proceeds of the debt and from any other funds and
receipts pledged under an indenture with a corporate trustee. The debt does not
constitute a debt, liability or pledge of the faith and credit of the State or
of any political subdivision or of the authorities. Neither the State nor any
political subdivision thereof nor the authorities shall be obligated to pay the
debt or the interest on the debt except from such revenues, funds and receipts.
Neither the faith and credit nor the taxing power of the State or of any
political subdivision of the State or the authorities is pledged to the payment
of the principal of or the interest on such debt. The issuance of the debt is
not directly or indirectly an obligation, moral or other, of the State or of
any political subdivision of the State or of the authority to levy or to pledge
any form of taxation whatsoever, or to make any appropriation, for their
payment. The authorities have no taxing power.
HOSPITAL BONDS. The rates charged by non-governmental Maryland hospitals are
subject to review and approval by the Maryland Health Services Cost Review
Commission. Maryland hospitals subject to regulation by the Commission are not
permitted to charge for services at rates other than those established by the
Commission. In addition, the Commission is required to permit any nonprofit
institution subject to its jurisdiction to charge reasonable rates which will
permit the institution to provide, on a solvent basis, effective and efficient
service in the public interest.
Under an agreement between Medicare and the Commission, Medicare agrees to
pay Maryland hospitals on the basis of Commission-approved rates, less a 6%
differential. Under this so-called "Medicare Waiver", Maryland hospitals are
exempt from the Medicare Prospective Payment System which pays hospitals fixed
amounts for specific services based upon patient diagnosis. No assurance can be
given that Maryland will continue to meet any current or future tests for the
continuation of the Medicare Waiver.
In setting hospital rates, the Commission takes into account each hospital's
budgeted volume of services and cash financial requirements for the succeeding
year. It then establishes the rates of the hospital for the succeeding year
based upon the projected volume and those financial requirements of the
institution which the Commission has deemed to be reasonable. Financial
requirements allowable for inclusion in rates generally include budgeted
operating costs, a "capital facilities allowance", other financial
considerations (such as charity care and bad debts) and discounts allowed
certain payors for prompt payment. Variations from projected volumes of
services are reflected in the rates for the succeeding year. The Commission, on
a selective basis by the application of established review criteria, grants
Maryland hospitals increases in rates to compensate for inflation experienced
by hospitals and for other factors beyond the hospitals' control.
Regulations of the Commission provide that overcharges will in certain
circumstances be deducted from prospective rates. Similarly, undercharges will
in certain circumstances not be recoverable through prospective rates.
The Commission has entered into agreements with certain hospitals to adjust
rates in accordance with a prospectively approved, guaranteed inpatient revenue
per admission program. Those agreements are in addition to the rate adjustment
methodology discussed above. Under the program, a hospital's revenue per
admission is compared to the revenue per admission, as adjusted, for a base
year. Variations from the adjusted base year revenues per admission are added
or deducted, as the case may be, from the hospital's gross revenue and rates
for the following year.
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There can be no assurance that the Commission will continue to utilize its
present rate-setting methodology or approve rates which will be sufficient to
ensure payment on an individual hospital's obligations. Future actions by the
Commission or the loss of the Medicare Waiver may adversely affect the
operations of individual hospitals.
MARYLAND TAXES
In the opinion of Messrs. Weinberg & Green, special Maryland counsel on
Maryland tax matters, under existing law applicable to individuals who are
Maryland residents:
The Maryland Trust will not be treated as an association taxable as a
corporation, and the income of the Maryland Trust will be treated as the
income of the Holders. The Maryland Trust is not a "financial institution"
subject to the Maryland Franchise Tax measured by net earnings. The
Maryland Trust is not subject to Maryland property taxes imposed on the
intangible personal property of certain corporations.
Except as described below in the case of interest paid on private
activity bonds constituting a tax preference for Federal income tax
purposes, a Holder will not be required to include such Holder's pro-rata
share of the earnings of, or distributions from, the Maryland Trust in such
Holder's Maryland taxable income to the extent that such earnings or
distributions represent interest excludable from gross income for Federal
income tax purposes received by the Maryland Trust on obligations of the
State of Maryland, the Government of Puerto Rico, or the Government of Guam
and their respective political subdivisions and authorities. Interest on
Bonds is subject to the Maryland Franchise Tax imposed on "financial
institutions" and measured by net earnings.
In the case of taxpayers who are individuals, Maryland presently imposes
an income tax on items of tax preference with reference to such items as
defined in the Internal Revenue Code, as amended, for purposes of
calculating the Federal alternative minimum tax. Interest paid on certain
private activity bonds is a preference item for purposes of calculating the
Federal alternative minimum tax. Accordingly, if the Maryland Trust holds
such bonds, 50% of the interest on such bonds in excess of a threshold
amount is taxable by Maryland.
A Holder will recognize taxable gain or loss, except in the case of an
individual Holder who is not a Maryland resident, when the Holder disposes
of all or part of such Holder's pro rata portion of the Bonds in the
Maryland Trust. A Holder will be considered to have disposed of all or part
of such Holder's pro rata portion of each Bond when the Holder sells or
redeems all or some of such Holder's Units. A Holder will also be
considered to have disposed of all or part of such Holder's pro rata
portion of a Bond when all or part of the Bond is disposed of by the
Maryland Trust or is redeemed or paid at maturity. Gain included in the
gross income of Holders for federal income tax purposes is, however,
subtracted from income for Maryland income tax purposes to the extent that
the gain is derived from the disposition of Bonds issued by the State of
Maryland and its political subdivisions. Profits realized on the sale or
exchange of Bonds are subject to the Maryland Franchise Tax imposed on
"financial institutions" and measured by net earnings.
Units of the Maryland Trust will be subject to Maryland inheritance and
estate tax only if held by Maryland residents.
Neither the Bonds nor the Units will be subject to Maryland personal
property tax.
The sales of Units in Maryland or the holding of Units in Maryland will
not be subject to Maryland Sales or Use Tax.
NEW YORK TRUST
RISK FACTORS--Prospective investors should consider the financial
difficulties and pressures which the State of New York and several of its
public authorities and municipal subdivisions have undergone. The following
briefly summarizes some of these difficulties and the current financial
situation, based principally on certain official statements currently
available; copies may be obtained without charge from the issuing entity.
NEW YORK STATE. In recent fiscal years, there have been extended delays in
adopting the State's budget, repeated revisions of budget projections,
significant revenue shortfalls (as well as increased expenses) and year-end
borrowing to finance deficits. These developments reflect faster long-term
growth in State spending than revenues and that the State was earlier and more
severely affected by the recent economic recession than most of the rest of the
country, as well as its substantial reliance on non-recurring revenue sources.
The State's general fund incurred cash basis deficits of $775 million, $1,081
million and $575 million, respectively, for the 1990-92
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fiscal years. Measures to deal with deteriorating financial conditions included
transfers from reserve funds, recalculating the State's pension fund
obligations (subsequently ruled illegal), hiring freezes and layoffs, reduced
aid to localities, sales of State property to State authorities, and additional
borrowings (including issuance of additional short-term tax and revenue
anticipation notes payable out of impounded revenues in the next fiscal year).
The general fund realized a $671 million surplus for fiscal year ended March
31, 1993, and a $1.54 billion surplus for the fiscal year ended March 31, 1994.
Approximately $5.4 billion of State general obligation debt was outstanding
at March 31, 1994. The State's net tax-supported debt (restated to reflect
LGAC's assumption of certain obligations previously funded through issuance of
short-term debt) was $27.5 billion at March 31, 1994, up from $11.7 billion in
1984. A proposed constitutional amendment passed by the Legislature would limit
additional lease-purchase and contractual obligation financing for State
facilities, but would authorize the State without voter referendum to issue
revenue bonds within a formula-based cap, secured solely by a pledge of certain
State tax receipts. It would also restrict State debt to capital projects
included in a multi-year capital financing plan. The proposal is subject to
approval by the current Legislature and by voters. S&P reduced its ratings of
the State's general obligation bonds on January 13, 1992 to A-(its lowest
rating for any state). Moody's reduced its ratings of State general obligation
bonds from A1 to A on June 6, 1990 and to Baa1, its rating of $14.2 billion of
appropriation-backed debt of the State and State agencies (over two-thirds of
the total debt) on January 6, 1992.
In May 1991 (over 2 months after the beginning of the 1992 fiscal year), the
State Legislature adopted a budget to close a projected $6.5 billion gap
(including repayment of $905 million of fiscal 1991 deficit notes). Measures
included $1.2 billion in new taxes and fees, $0.9 billion in non-recurring
measures and about $4.5 billion of reduced spending by State agencies
(including layoffs), reduced aid to localities and school districts, and
Medicaid cost containment measures. After the Governor vetoed $0.9 billion in
spending, the State adopted $0.7 billion in additional spending, together with
various measures including a $100 million increase in personal income taxes and
$180 million of additional non-recurring measures. Due primarily to declining
revenues and escalating Medicaid and social service expenditures, $0.4 billion
of administrative actions, $531 million of year-end short-term borrowing and a
$44 million withdrawal from the Tax Stabilization Reserve Fund were required to
meet the State's cash flow needs.
The State budget to close a projected $4.8 billion gap for the State's 1993
fiscal year (including repayment of the fiscal 1992 short-term borrowing)
contained a combination of $3.5 billion of spending reductions (including
measures to reduce Medicaid and social service spending, as well as further
employee layoffs, reduced aid to municipalities and schools and reduced support
for capital programs), deferral of scheduled tax reductions, and some new and
increased fees. Nonrecurring measures aggregated $1.18 billion.
To close a projected budget gap of nearly $3 billion for the fiscal year
ended March 31, 1994, the State budget contained various measures including
further deferral of scheduled income tax reductions, some tax increases, $1.6
billion in spending cuts, especially for Medicaid, and further reduction of the
State's work force. The budget increased aid to schools, and included a formula
to channel more aid to districts with lower-income students and high property
tax burdens. State legislation requires deposit of receipts from the petroleum
business tax and certain other transportation-related taxes into funds
dedicated to transportation purposes. Nevertheless, $516 million of these
monies were retained in the general fund during this fiscal year. The Division
of the Budget has estimated that non-recurring income items other than the $671
million surplus from the 1993 fiscal year aggregated $318 million.
The budget for the fiscal year that began April 1, 1994, increases spending
by 3.8% (greater than inflation for the first time in six years). Tax revenue
projections are based on assumed modest growth in the State economy. It
provides a tax credit for low income families and increases aid to education,
especially in the poorer districts. The State reduced coverage and placed
additional restrictions on certain health care services. Over $1 billion
results from postponement of scheduled reductions in personal income taxes for
a fifth year and in taxes on hospital income; another $1 billion comes from
rolling over the surplus from the previous fiscal year. Other non-recurring
measures were reduced to $78 million. The State Legislature passed legislation
to implement a budget agreement more than two months after the beginning of the
year. Taxes (principally business taxes) were reduced by $475 million in the
current fiscal year and by $1.6 billion annually after fully phased in. In
November 1993 the State's Court of Appeals ruled unconstitutional 1990
legislation which postponed employee pension contributions by the State and
localities (other than New York City). The amounts to be made up, estimated to
aggregate $4 billion (half from the State), will be repaid in increasing
amounts over 12-20 years and previous contribution levels will not be exceeded
until 1999. The State's new Governor estimates a deficit of at least $300
million for the fiscal year ending March 31, 1995 and at least $5 billion for
the next fiscal year. He ordered a partial hiring freeze and reductions in non-
essential expenditures. The new Governor's proposed budget for the 1996 fiscal
year seeks significant reductions in expenditures, particularly on State
agencies (by reducing the State workforce) and on health care and social
services, but also across the board including aid to education and
transportation. The proposal includes $650 million in non-recurring measures.
He also proposed reductions aggregating $1 billion in the State income tax.
Capital spending in the year would be substantially reduced; the MTA alone has
been asked to postpone $690 million in proposed borrowing. The proposal
requires approval by the State Legislature. However, closing the deficit for
that and future years will be more difficult in view of the Governor's plan to
reduce personal income taxes by 25% during his four-year term and
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because of potential decreases in Federal aid. State and other estimates are
subject to uncertainties including the effects of Federal tax legislation and
economic developments. The State in October 1994 cautioned that its estimates
were subject to the risk that further increases in interest rates could impede
economic growth.
The State normally adjusts its cash basis balance by deferring until the
first quarter of the succeeding fiscal year substantial amounts of tax refunds
and other disbursements. For many years, it also paid in that quarter more
than 40% of its annual assistance to local governments. Payment of these
annual deferred obligations and the State's accumulated deficit was
substantially financed by issuance of short-term tax and revenue anticipation
notes shortly after the beginning of each fiscal year. The New York Local
Government Assistance Corporation ("LGAC") was established in 1990 to issue
long-term bonds over several years, payable from a portion of the State sales
tax, to fund certain payments to local governments traditionally funded
through the State's annual seasonal borrowing. The legislation will normally
limit the State's short-term borrowing, together with net proceeds of LGAC
bonds, to a total of $4.7 billion. The State's latest seasonal borrowing, in
May 1993, was $850 million.
Generally accepted accounting principles ("GAAP") for municipal entities
apply modified accrual accounting and give no effect to payment deferrals. On
an audited GAAP basis, the State's government funds group recorded operating
deficits of $1.2 billion and $1.4 billion for the 1990 and 1991 fiscal years.
For the same periods the general fund recorded deficits (net of transfers from
other funds) of $0.7 billion and $1.0 billion. Reflecting $1.6 billion, $881
million and $875 million of payments by LGAC to local governments out of
proceeds from bond sales, the general fund realized surpluses of $1.7 billion,
$2.1 billion and $0.9 billion for the 1992, 1993 and 1994 fiscal years,
respectively, leaving an accumulated deficit of $1.6 billion. A $0.7 billion
deficit has been projected for the fiscal year ending March 31, 1995.
For decades, the State's economy has grown more slowly than that of the rest
of the nation as a whole. Part of the reason for this decline has been
attributed to the combined State and local tax burden, which is among the
highest in the nation (over 60% above the national average). The State's
dependence on Federal funds and sensitivity to changes in economic cycles, as
well as the high level of taxes, may continue to make it difficult to balance
State and local budgets in the future. The total employment growth rate in the
State has been below the national average since 1984. The State lost 524,000
jobs in 1990-1992. It regained approximately 134,000 jobs between November
1990 and July 1994 but has experienced a slight decline since then.
New York City (the "City"). The City is the State's major political
subdivision. In 1975, the City encountered severe financial difficulties,
including inability to refinance $6 billion of short-term debt incurred to
meet prior annual operating deficits. The City lost access to the public
credit markets for several years and depended on a variety of fiscal rescue
measures including commitments by certain institutions to postpone demands for
payment, a moratorium on note payment (later declared unconstitutional),
seasonal loans from the Federal government under emergency congressional
legislation, Federal guarantees of certain City bonds, and sales and exchanges
of bonds by The Municipal Assistance Corporation for the City of New York
("MAC") to fund the City's debt.
MAC has no taxing power and pays its obligations out of sales taxes imposed
within the City and per capita State aid to the City. The State has no legal
obligation to back the MAC bonds, although it has a "moral obligation" to do
so. MAC is now authorized to issue bonds only for refunding outstanding issues
and up to $1.5 billion should the City fail to fund specified transit and
school capital programs. The State also established the Financial Control
Board ("FCB") to review the City's budget, four-year financial plans,
borrowings and major contracts. These were subject to FCB approval until 1986
when the City satisfied statutory conditions for termination of such review.
The FCB is required to reimpose the review and approval process in the future
if the City were to experience certain adverse financial circumstances. The
City's fiscal condition is also monitored by a Deputy State Comptroller.
The City projects that it is emerging from four years of economic recession.
From 1989 to 1993, the gross city product declined by 10.1% and employment, by
almost 11%, while the public assistance caseload grew by over 25%.
Unemployment averaged 10.8% in 1992 and 10.1% in 1993, peaking at 13.4% in
January 1993, the highest level in 25 years. While the City's unemployment
rate has declined substantially since then, it is still above the rest of the
State and the nation as a whole. The number of persons on welfare exceeds 1.1
million, the highest level since 1972, and one in seven residents is currently
receiving some form of public assistance.
While the City, as required by State law, has balanced its budgets in
accordance with GAAP since 1981, this has required exceptional measures in
recent years. The FCB has commented that City expenditures have grown faster
than revenues each year since 1986, masked in part by a large number of non-
recurring gap closing actions. To eliminate potential budget gaps of $1-$3
billion each year since 1988 the City has taken a wide variety of measures. In
addition to increased taxes and productivity increases, these have included
hiring freezes and layoffs, reductions in services, reduced pension
contributions, and a number of nonrecurring measures such as bond refundings,
transfers of surplus funds from MAC, sales of City property and tax
receivables. The FCB concluded that the City has neither the economy nor the
revenues to do everything its citizens have been accustomed to expect.
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The City closed a budget gap for the 1993 fiscal year (estimated at $1.2
billion) through actions including service reductions, productivity
initiatives, transfer of $0.5 billion surplus from the 1992 fiscal year and
$100 million from MAC. A November 1992 revision offset an additional $561
million in projected expenditures through measures including a refunding to
reduce current debt service costs, reduction in the reserve and an additional
$81 million of gap closing measures. Over half of the City's actions to
eliminate the gap were non-recurring.
The Financial Plan for the City's 1994 fiscal year relied on increases in
State and Federal aid, as well as the 1993 $280 million surplus and a partial
hiring freeze, to close a gap resulting primarily from labor settlements and
decline in property tax revenues. The Plan contained over $1.3 billion of one-
time revenue measures including bond refundings, sale of various City assets
and borrowing against future property tax receipts. Interim expenditure
reductions of approximately $300 million were implemented. The FCB reported
that although a $98 million surplus was projected for the year (the surplus was
actually $81 million), a $312 million shortfall in budgeted revenues and $904
million of unanticipated expenses (including an unbudgeted increase of over
3,300 in the number of employees and a record level of overtime), net of
certain increased revenues and other savings, resulted in depleting prior
years' surpluses by $326 million.
The City's Financial Plan for the current fiscal year (that began July 1,
1994) proposed both to eliminate a projected $2.3 billion budget gap and to
stabilize overall spending while beginning to reduce some business and other
taxes. It calls for a reduction of 15,000 in the City workforce by June 1995
unless equivalent productivity savings are negotiated with unions; with the aid
of $200 million from MAC, the City induced 11,500 workers to accept voluntary
severance, and union leaders accepted transfer of remaining employees between
agencies. The Plan projects about $560 million of increased State and Federal
aid, some of which has not yet been approved. Non-recurring measures include
$225 million from refinancing outstanding bonds (which the FCB estimates will
cancel almost 10% of the debt service savings anticipated from the recent
capital plan reduction), extension of the repayment schedule of a debt to City
pension funds, revision of actuarial assumptions to reduce contribution levels,
and sale of a City-owned hotel. A proposal for City employees to bear $200
million of their health care costs must be negotiated with the unions, which
have announced their opposition.
Since the current year's Financial Plan was adopted, the City has experienced
lower than anticipated tax collections, higher than budgeted costs
(particularly overtime and liability claims), and increased likelihood that
various revenue measures including certain anticipated Federal and State aid,
will not occur. In July 1994, the Mayor ordered expenditure reductions of $250
million and a contingency plan for another $200 million. In late October, the
Mayor proposed another $900 million of spending cuts to address a then
projected $1.1 billion additional budget gap. $190 million represents proposed
transfers of excess reserves in employee health care plans, a non-recurring
measure, and the City's subsidy to the TA will be reduced by the $113 million
it expects to realize for 1994. Maintenance of City infrastructure would be
reduced, which could lead to higher expenses in future years. The City Council
rejected the Mayor's proposals and adopted its own plan, overriding the Mayor's
veto and sued the Mayor in State Supreme Court to enforce that plan. Following
the Mayor's withdrawal of his October proposals and dismissal of the suit, the
Mayor impounded $790 million of funds for previously authorized expenditures.
In February 1995 the City Council approved an additional $647 million deficit-
reduction plan, including a second bond refinancing in the fiscal year as an
alternative to about $120 million of further reductions in subsidies to the
Board of Education.
The Mayor is exploring the possibility of privatizing some of the City's
services. The City Council passed legislation which authorizes the Council to
hold hearings on any significant privatization and requires submission of a
cost-benefit analysis. The City has awarded or is in the process of awarding
contracts to private companies to run more than twenty separate services.
Responding to an impasse in negotiations to increase the Port Authority rent
paid to the City for Kennedy and LaGuardia airports, the City is studying how
the airports might be privatized. The Mayor has also been seeking greater
control over spending by independent authorities and agencies such as the Board
of Education, the Health and Hospitals Corporation and the TA. The Mayor's
efforts to reduce expenditures by the Board of Education, including appointment
of another fiscal monitor, reduction in City funding of capital projects and
rejection of a tentative labor contract, have strained relations with the
Schools Chancellor at a time of rising enrollments. In March 1994 the Mayor
reduced cash incentives to landlords renting apartments to the homeless. A
program to require able-bodied welfare recipients to render community service
started being phased in January 1995. It has been reported that the Mayor is
considering proposals including eliminating City financing of a program that
creates housing for single homeless people, charging shelter occupants who
refuse offers of treatment or training a modest rent for use of the shelter,
and replacing some of the subsidies to day care centers with a voucher system.
A plan to fingerprint welfare recipients in the City could be subject to legal
challenge. Budget gaps of $1.0 billion, $1.5 billion and $2.0 billion were
projected for the 1996 through 1998 fiscal years, respectively in the Mayor's
October 1994 proposal and the City now projects a budget gap of about $2.5
billion for the fiscal year commencing July 1, 1995, attributed to tax revenue
shortfalls, reductions in State and Federal aid, higher Medicaid and agency
spending, failure to negotiate increased lease payments for City airports,
additional funding for pensions and State failure to adopt a tort reform
measure. In December 1994 the Mayor's Budget Director ordered preparation of
proposals to reduce City expenditures on welfare, and particularly Medicaid,
for that 1996 fiscal year. The fiscal monitors have suggested that these
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gaps could reach $2-4 billion annually. The State Comptroller cited principally
growing Medicaid, employee health insurance and debt service costs. Even after
recent capital plan reductions, the City Comptroller recently projected that
debt service will consume 19.5% of tax revenue by the 1998 fiscal year.
A major uncertainty is the City's labor costs, which represent about 50% of
its total expenditures. The City's workforce grew by 34% during the 1980s. A
January 1993 agreement covering approximately 44% of the City workers followed
negotiations lasting nearly two years. Workers will receive wage and benefit
raises totalling 8.25% over 39 months ending March 1995. An agreement announced
in August 1993 provides wage increases for City teachers averaging 9% over the
48 1/2 months ending October 1995. The City is seeking to negotiate workforce
productivity initiatives, savings from which would be shared with the workers
involved. Under a contract reached in September 1994, while sanitation workers
would receive an overall increase of 8.25% in wages and benefits over 39
months, routes would be lengthened by an average of 20%. The Financial Plan
assumes no further wage increases after the 1995 fiscal year. Also, costs of
some previous wage increases were offset by reduced contributions to pension
funds; if fund performance is less than the 9% annual earnings projected (as is
expected in the current fiscal year), the City could incur increased expenses
in future years. Although an actuarial audit has not been completed, the
January 1995 budget estimate for the 1996 fiscal year anticipates that the City
will need to contribute an additional $300 million in that year.
Budget balance may also be adversely affected by the effect of the economy on
economically sensitive taxes. Reflecting the downturn in real estate prices and
increasing defaults, estimates of property tax revenues have been reduced. If
this trend continues, the City's ability to issue additional general obligation
bonds could be limited by the 1998 fiscal year. The City also faces uncertainty
in its dependence on State aid as the State grapples with its own projected
budget gap. Other uncertainties include additional expenditures to combat
deterioration in the City's infrastructure (such as bridges, schools and water
supply), costs of developing alternatives to ocean dumping of sewage sludge
(which the City expects to defray through increased water and sewer charges),
cost of the AIDS epidemic and problems of drug addiction and homelessness. For
example, the City may be ordered to spend up to $8 billion to construct water
filtration facilities if it is not successful in implementing measures to
prevent pollution of its watershed upstate. In December 1994 the City submitted
for State approval proposed new pervasive regulations of activities in the area
which can cause pollution. Elimination of any additional budget gaps will
require various actions, including by the State, a number of which are beyond
the City's control. Staten Island voters in 1993 approved a proposed charter
under which Staten Island would secede from the City. Secession will require
enabling legislation by the State Legislature; it would also be subject to
legal challenge by the City. The effects of secession on the City cannot be
determined at this time, but questions include responsibility for outstanding
debt, a diminished tax base, and continued use of the Fresh Kills landfill, the
City's only remaining garbage dump. A similar measure with respect to Queens
was approved by the New York State Senate.
In December 1993, a report commissioned by the City was released, describing
the nature of the City's structural deficit. It projects that the City will
need to identify and implement $5 billion in annual gap closing measures by
1998. The report suggests a variety of possible measures for City
consideration. The Mayor rejected out of hand many of the proposals such as tax
increases.
The City sold $1.4 billion, $1.8 billion and $2.2 billion of short-term
notes, respectively, during the 1993, 1994 and current fiscal years. At
September 30, 1994, there were outstanding $21.7 billion of City bonds (not
including City debt held by MAC), $4.1 billion of MAC bonds and $0.8 billion of
City-related public benefit corporation indebtedness, each net of assets held
for debt service. Standard & Poor's and Moody's during the 1975-80 period
either withdrew or reduced their ratings of the City's bonds. S&P currently
rates the City's debt A- while Moody's rates City bonds Baa1. Following
announcement of the second bond refinancing, in January 1995 S&P put the City's
debt rating on CreditWatch for possible downgrading. In the wake of the City's
current budget difficulties, it has been reported that the City had to pay
higher interest rates on its January 1995 bond sale than other comparably rated
bonds (nearly 0.5% above an average of 30-year bonds). City-related debt almost
doubled since 1987, although total debt declined as a percentage of estimated
full value of real property. The City's financing program projects long-term
financing during fiscal years 1995-1998 to aggregate $15.3 billion. An
additional $2.7 billion is to be derived from other sources, principally use of
restricted cash balances and advances from the general fund in anticipation of
bond issuances. The City's latest Ten Year Capital Strategy plans capital
expenditures of $45.6 billion during 1994-2003 (93% of be City funded).
OTHER NEW YORK LOCALITIES. In 1992, other localities had an aggregate of
approximately $15.7 billion of indebtedness outstanding. In recent years,
several experienced financial difficulties. A March 1993 report by Moody's
Investors Service concluded that the decline in ratings of most of the State's
largest cities in recent years resulted from the decline in the State's
manufacturing economy. Seventeen localities had outstanding indebtedness for
deficit financing at the close of their respective 1992 fiscal years. Any
reductions in State aid to localities may cause additional localities to
experience difficulty in achieving balanced budgets. If special local
assistance were needed from the State in the future, this could adversely
affect the State's as well as the localities' financial condition. Most
localities depend on
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substantial annual State appropriations. Legal actions by utilities to reduce
the valuation of their municipal franchises, if successful, could result in
localities becoming liable for substantial tax refunds.
STATE PUBLIC AUTHORITIES. In 1975, after the Urban Development Corporation
("UDC"), with $1 billion of outstanding debt, defaulted on certain short-term
notes, it and several other State authorities became unable to market their
securities. Since 1975 the State has provided substantial direct and indirect
financial assistance to UDC, the Housing Finance Agency ("HFA"), the
Environmental Facilities Corporation and other authorities. Practical and legal
limitations on these agencies' ability to pass on rising costs through rents
and fees could require further State appropriations. 18 State authorities had
an aggregate of $63.5 billion of debt outstanding at September 30, 1993. At
March 31, 1994, approximately $0.4 billion of State public authority
obligations was State-guaranteed, $7.3 billion was moral obligation debt
(including $4.8 billion of MAC debt) and $16.6 billion was financed under
lease-purchase or contractual obligation financing arrangements with the State.
Various authorities continue to depend on State appropriations or special
legislation to meet their budgets.
The Metropolitan Transportation Authority ("MTA"), which oversees operation
of the City's subway and bus system by the City Transit Authority (the "TA")
and operates certain commuter rail lines, has required substantial State and
City subsidies, as well as assistance from several special State taxes.
Measures to balance the TA's 1993 budget included increased funding by the
City, increased bridge and tunnel tolls and allocation of part of the revenues
from the Petroleum Business Tax. While the TA projects a budget surplus for
1994 cash basis gaps of $300-800 million are projected for each of the 1995
through 1998 years. Measures proposed to close these gaps include various
additional State aid and possible fare increases. However, both State and City
budget proposals would reduce their subsidies to the MTA. An agreement with TA
workers reached in July 1994, which provides 10.4% wage increases over 39
months, will cost the MTA $337 million. The MTA Chairman stated that this cost
would be partly offset by savings from work rule changes and that money for the
settlement is available in the TA's budget. An earlier settlement with Long
Island Railroad workers is expected to cost the MTA $14 million over 26 months.
The MTA in December 1994 proposed to change various TA fares in mid 1995, but
failed to reflect the City's proposed reduction in its subsidy by the amount of
the 1994 surplus and its subsidy for reduced fares for school children and
various other uncertainties. Later that month, it postponed adoption of the
1995 operating budget to allow time for consultation with the State's new
Governor. In January 1995, a State Supreme Court justice ruled that the Mayor
is authorized to withhold the City subsidy for transit polices ($320 million a
year), following which the MTA Chairman dropped his opposition to the merger of
the TA police with the City's police.
Substantial claims have been made against the TA and the City for damages
from a 1990 subway fire and a 1991 derailment. The MTA infrastructure,
especially in the City, needs substantial rehabilitation. In December 1993, a
$9.5 billion MTA Capital Plan was finally approved for 1992-1996; however, $500
million was contingent on increased contributions from the City which it has
declined to approve. The City is seeking State and MAC approval to defer $245
million of capital contributions to the TA from the City's current fiscal year
until 1998. The Governor has requested the MTA to postpone the $690 million of
borrowing for capital spending under the Plan for 1995. It is anticipated that
the MTA and the TA will continue to require significant State and City support.
Moody's reduced its rating of certain MTA obligations to Baa on April 14, 1992.
LITIGATION. The State and the City are defendants in numerous legal
proceedings, including challenges to the constitutionality and effectiveness of
various welfare programs, alleged torts and breaches of contract, condemnation
proceedings and other alleged violations of laws. Adverse judgments in these
matters could require substantial financing not currently budgeted. For
example, in addition to real estate certiorari proceedings, claims in excess of
$286 billion were outstanding against the City at June 30, 1994, for which it
estimated its potential future liability at $2.6 billion. Another action seeks
a judgment that, as a result of an overestimate by the State Board of
Equalization and Assessment, the City's 1992 real estate tax levy exceeded
constitutional limits. In March 1993, the U.S. Supreme Court ruled that if the
last known address of a beneficial owner of accounts held by banks and
brokerage firms cannot be ascertained, unclaimed funds therein belong to the
state of the broker's incorporation rather than where its principal office is
located. New York agreed to pay Delaware $200 million over a 5-year period and
other States $100 million over a 10-year period. The case has been remanded to
a special master to determine disposition of these monies.
Final adverse decisions in any of these cases could require extraordinary
appropriations at either the State or City level or both.
NEW YORK TAXES
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsor,
under existing New York law:
Under the income tax laws of the State and City of New York, the Trust is
not an association taxable as a corporation and income received by the
Trust will be treated as the income of the Holders in the same manner as
for Federal income tax purposes. Accordingly, each Holder will be
considered to have received the interest on his pro rata portion of each
Bond when interest on the Bond is received by the Trust. In the opinion of
bond counsel delivered on the date of issuance of the Bond, such interest
will be exempt from New York State and City personal income taxes except
where such interest is subject to Federal income taxes (see
C-13
<PAGE>
Taxes). A noncorporate Holder of Units of the Trust who is a New York State
(and City) resident will be subject to New York State (and City) personal
income taxes on any gain recognized when he disposes of all or part of his
pro rata portion of a Bond. A noncorporate Holder who is not a New York
State resident will not be subject to New York State or City personal
income taxes on any such gain unless such Units are attributable to a
business, trade, profession or occupation carried on in New York. A New
York State (and City) resident should determine his tax basis for his pro
rata portion of each Bond for New York State (and City) income tax purposes
in the same manner as for Federal income tax purposes. Interest income on,
as well as any gain recognized on the disposition of, a Holder's pro rata
portion of the Bonds are generally not excludable from income in computing
New York State and City corporate franchise taxes.
PENNSYLVANIA TRUST
RISK FACTORS--Potential purchasers of Units of the Pennsylvania Trust should
consider the fact that the Trust's portfolio consists primarily of securities
issued by the Commonwealth of Pennsylvania (the "Commonwealth"), its
municipalities and authorities and should realize the substantial risks
associated with an investment in such securities. Although the General Fund of
the Commonwealth (the principal operating fund of the Commonwealth) experienced
deficits in fiscal 1990 and 1991, tax increases and spending decreases helped
return the General Fund balance to a surplus at June 30, 1992 of $87.5 million
and at June 30, 1993 of $698.9 million. The deficit in the Commonwealth's
unreserved/undesignated funds of prior years also was reversed to a surplus of
$64.4 million as of June 30, 1993.
Pennsylvania's economy historically has been dependent upon heavy industry,
but has diversified recently into various services, particularly into medical
and health services, education and financial services. Agricultural industries
continue to be an important part of the economy, including not only the
production of diversified food and livestock products, but substantial economic
activity in agribusiness and food-related industries. Service industries
currently employ the greatest share of nonagricultural workers, followed by the
categories of trade and manufacturing. Future economic difficulties in any of
these industries could have an adverse impact on the finances of the
Commonwealth or its municipalities, and could adversely affect the market value
of the Bonds in the Pennsylvania Trust or the ability of the respective
obligors to make payments of interest and principal due on such Bonds.
Certain litigation is pending against the Commonwealth that could adversely
affect the ability of the Commonwealth to pay debt service on its obligations
including suits relating to the following matters: (i) the ACLU has filed suit
in federal court demanding additional funding for child welfare services; the
Commonwealth settled a similar suit in the Commonwealth Court of Pennsylvania
and is seeking the dismissal of the federal suit, inter alia, because of that
settlement. The district court has denied class certification to the ACLU, and
the parties have stipulated to a judgment against the plaintiffs to allow
plaintiffs to appeal the denial of a class certification to the Third Circuit.
(no available estimate of potential liability); (ii) in 1987, the Supreme Court
of Pennsylvania held the statutory scheme for county funding of the judicial
system to be in conflict with the constitution of the Commonwealth, but stayed
judgment pending enactment by the legislature of funding consistent with the
opinion, and the legislature has yet to consider legislation implementing the
judgment. In 1992, a new action in mandamus was filed seeking to compel the
Commonwealth to comply with the original decision; (iii) several banks have
filed suit against the Commonwealth contesting the constitutionality of a law
enacted in 1989 imposing a bank shares tax; in July 1994, the Commonwealth
Court en banc upheld the constitutionality of the 1989 bank shares tax law, but
struck down a companion law to provide credits against the bank shares tax for
new banks; cross-appeals from that decision to the Pennsylvania Supreme Court
have been filed; (iv) litigation has been filed in both state and federal court
by an association of rural and small schools and several individual school
districts and parents challenging the constitutionality of the Commonwealth's
system for funding local school districts--the federal case has been stayed
pending resolution of the state case, and the state case is in the pre-trial
stage (no available estimate of potential liability); (v) the ACLU has brought
a class action suit on behalf of inmates challenging the conditions of
confinement in thirteen of the Commonwealth's correctional institutions; a
proposed settlement agreement has been submitted to the court and members of
the class for their review (no available estimate of potential cost of
complying with the injunction sought, but capital and personnel costs might
cost millions of dollars); (vi) a consortium of public interest law firms filed
a class action suit alleging that the Commonwealth has not complied with a
federal mandate to provide screening, diagnostic and treatment services for all
Medicaid-eligible children under 21; the district court denied class
certification, and the parties have submitted a tentative settlement agreement
to the court for approval; and (vii) litigation has been filed in federal court
by the Pennsylvania Medical Society seeking payment of the full co-pay and
deductible in excess of the maximum fees set under the Commonwealth's medical
assistance program for outpatient services provided to medical assistance
patients who also are eligible for Medicare; the Commonwealth received a
favorable decision in the federal district court, but the Pennsylvania Medical
Society won a reversal in the federal circuit court (potential liability
estimated at $50 million per year).
The Commonwealth's general obligation bonds have been rated AA- by Standard &
Poor's and A1 by Moody's for more than the last five years.
The City of Philadelphia (the "City") has been experiencing severe financial
difficulties which has impaired its access to public credit markets and a long-
term solution to the City's financial crisis is still being sought. The City
experienced a series of General Fund
C-14
<PAGE>
deficits for Fiscal Years 1988 through 1992. The City has no legal authority to
issue deficit reduction bonds on its own behalf, but state legislation has been
enacted to create an Intergovernmental Cooperation Authority (the "Authority")
to provide fiscal oversight for Pennsylvania cities (primarily Philadelphia)
suffering recurring financial difficulties. The Authority is broadly empowered
to assist cities in avoiding defaults and eliminating deficits by encouraging
the adoption of sound budgetary practices and issuing bonds. In order for the
Authority to issue bonds on behalf of the City, the City and the Authority
entered into an intergovernmental cooperative agreement providing the Authority
with certain oversight powers with respect to the fiscal affairs of the City,
and the Authority originally approved a five-year financial plan prepared by
the City on April 6, 1992. The Authority approved the latest update of the five
year financial plan on May 2, 1994. The City has reported a surplus of
approximately $15 million for the fiscal year ending June 30, 1994. In June
1992, the Authority issued $474,555,000 in bonds to liquidate the City's
deficit balance in its general fund. The Authority issued $643,430,000 of bonds
in July 1993 and $178,675,000 of bonds in August 1993 to refund certain bonds
of the City and to fund additional capital projects.
PENNSYLVANIA TAXES
In the opinion of Messrs. Drinker Biddle & Reath, Philadelphia, Pennsylvania,
special counsel on Pennsylvania tax matters, under existing law:
Units evidencing fractional undivided interests in the Pennsylvania Trust
are not subject to any of the personal property taxes presently in effect
in Pennsylvania to the extent that the Trust is comprised of bonds issued
by the Commonwealth of Pennsylvania, any public authority, commission,
board or other agency created by the Commonwealth of Pennsylvania or any
public authority created by any such political subdivision ("Pennsylvania
Bonds"). The portion, if any, of such Units representing bonds or other
obligations issued by the Government of Guam or by its authority, bonds
issued by the Government of Puerto Rico or by its authority, and bonds
issued by the Government of the Virgin Islands or by a municipality thereof
(collectively, "Possession Bonds") is not expressly exempt from personal
property taxation under Pennsylvania law. However, such bonds are expressly
relieved from direct state taxation by United States statutes. Therefore,
Units in the Pennsylvania Trust are not subject to Personal Property Tax to
the extent that the Trust is comprised of Possession Bonds.
Pennsylvania Trust Units may be subject to tax in the estate of a
resident decedent under the Pennsylvania inheritance and estate taxes.
Income received by a Unit holder attributable to interest realized by the
Pennsylvania Trust from Pennsylvania Bonds, Possession Bonds, and Prior
Trust Units is not taxable to individuals, estates or trusts under the
Personal Income Tax imposed by Article III of the Tax Reform Code of 1971;
to corporations under the Corporate Net Income Tax imposed by Article IV of
the Tax Reform Code of 1971; nor to individuals under the Philadelphia
School District Net Income Tax ("School District Tax") imposed on
Philadelphia resident individuals under the authority of the Act of August
9, 1963, P.L. 640.
Income received by a Unit holder attributable to gain on the sale or
other disposition by the Pennsylvania Trust of Pennsylvania Bonds and
Possession Bonds (including such interest received from Prior Trust Units)
is taxable under the Personal Income Tax, the Corporate Net Income Tax,
and, unless these assets were held by the Pennsylvania Trust for more than
six months, the School District Tax.
To the extent that gain on the disposition of a Unit represents gain
realized on Pennsylvania Bonds held by the Pennsylvania Trust or held by
Prior Trust Units, such gain may be subject to the Personal Income Tax and
Corporate Net Income Tax. Such gain may also be subject to the School
District Tax, except that gain realized with respect to a Unit held for
more than six months is not subject to the School District Tax.
No opinion is expressed regarding the extent, if any, to which Units, or
interest and gain thereon, is subject to, or included in the measure of, the
special taxes imposed by the Commonwealth of Pennsylvania on banks and other
financial institutions or with respect to any privilege, excise, franchise or
other tax imposed on business entities not discussed herein (including the
Corporate Capital Stock/Foreign Franchise Tax).
C-15
<PAGE>
TAX FREE VS. TAXABLE INCOME
The following tables show the approximate yields which taxable securities
must earn in various income brackets to equal tax exempt yields under combined
Federal and state individual income tax rates. This table reflects projected
Federal income tax rates and tax brackets for the 1995 taxable year and state
income tax rates that were available on the date of the Prospectus. Because
the Federal rate brackets are subject to adjustment based on changes in the
Consumer Price Index, the taxable equivalent yields for subsequent years may
be lower than indicated. A table is computed on the theory that the taxpayer's
highest bracket tax rate is applicable to the entire amount of any increase or
decrease in taxable income (after allowance for any resulting change in state
income tax) resulting from a switch from taxable to tax-free securities or
vice versa. Variations between state and Federal allowable deductions and
exemptions are generally ignored. The state tax is thus computed by applying
to the Federal taxable income bracket amounts shown in the table the
appropriate state rate for those same dollar amounts. For example, a married
couple living in the State of Connecticut and filing a Joint Return with
$53,000 in taxable income for the 1995 tax year would need a taxable
investment yielding 8.73% in order to equal a tax-free return of 6.00%. Use
the appropriate table to find your tax bracket. Read across to determine the
approximate taxable yield you would need to equal a return free of Federal
income tax and state income tax.
STATE OF CONNECTICUT
1995 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 to 39,000 18.83% 4.93 5.54 6.16 6.78 7.39 8.01 8.62 9.24 9.86
$ 39,001 to 94,250 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18 10.91 11.63
$ 94,251 to 114,700 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62 11.38 12.14
$114,701 to 143,600 34.99 6.15 6.92 7.69 8.46 9.23 10.00 10.77 11.54 12.31
$143,601 to 256,500 39.91 6.66 7.49 8.32 9.15 9.99 10.82 11.65 12.48 13.31
Over $256,500 43.45 7.07 7.96 8.84 9.73 10.61 11.50 12.38 13.26 14.15
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 to 23,350 18.83% 4.93 5.54 6.16 6.78 7.39 8.01 8.62 9.24 9.86
$ 23,351 to 56,550 31.24 5.82 6.54 7.27 8.00 8.73 9.45 10.18 10.91 11.63
$ 56,551 to 114,700 34.11 6.07 6.83 7.59 8.35 9.11 9.86 10.62 11.38 12.14
$114,701 to 117,950 34.99 6.15 6.92 7.69 8.46 9.23 10.00 10.77 11.54 12.31
$117,951 to 256,500 39.91 6.66 7.49 8.32 9.15 9.99 10.82 11.65 12.48 13.31
Over $256,500 43.45 7.07 7.96 8.84 9.73 10.61 11.50 12.38 13.26 14.15
</TABLE>
- -------
This table reflects the following:
1 Taxable income equals adjusted gross income less personal exemptions of
$2,500 less the standard deduction of $6,550 on a joint return or total
itemized deductions, whichever is greater. However under the provisions of
the Omnibus Budget Reconciliation Act of 1990, itemized deductions are
reduced by 3% of the amount of a taxpayer's AGI over $114,700. This is
reflected in the brackets above by higher effective federal tax rates.
Furthermore, personal exemptions are phased out for the amount of a
taxpayer's AGI over $114,700 for single taxpayers and $172,050 for married
taxpayers filing jointly. This latter provision is not incorporated into the
above brackets.
2 The combined effective rate is computed under the assumption that taxpayers
itemize their deductions on their federal income tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates used
are the highest rates applicable to the income levels indicated within each
bracket.
C-16
<PAGE>
STATE OF MARYLAND*
1995 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED
FEDERAL, STATE TAX FREE YIELD
TAXABLE AND LOCAL 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 1,000 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80% 8.40% 9.00% 9.60%
$ 1,001- 2,000 17.55 4.85 5.46 6.06 6.67 7.28 7.88 8.49 9.10 9.70
$ 2,001- 3,000 18.40 4.90 5.51 6.13 6.74 7.35 7.97 8.58 9.19 9.80
$ 3,001- 39,000 19.25 4.95 5.57 6.19 6.81 7.43 8.05 8.67 9.29 9.91
$ 39,001- 94,250 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23 10.96 11.70
$ 94,251-114,700 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68 11.44 12.20
$114,701-143,600 35.33 6.19 6.96 7.73 8.51 9.28 10.05 10.82 11.60 12.37
$143,601-150,000 40.23 6.69 7.53 8.36 9.20 10.04 10.87 11.71 12.55 13.38
$150,001-256,300 40.86 6.76 7.61 8.45 9.30 10.14 10.99 11.84 12.68 13.53
Over $256,500 44.34 7.19 8.09 8.98 9.88 10.78 11.68 12.58 13.48 14.37
SINGLE RETURN
$ 0- 1,000 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80% 8.40% 9.00% 9.60%
$ 1,001- 2,000 17.55 4.85 5.46 6.06 6.67 7.28 7.88 8.49 9.10 9.70
$ 2,001- 3,000 18.40 4.90 5.51 6.13 6.74 7.35 7.97 8.58 9.19 9.80
$ 3,001- 23,350 19.25 4.95 5.57 6.19 6.81 7.43 8.05 8.67 9.29 9.91
$ 23,351- 56,550 31.60 5.85 6.58 7.31 8.04 8.77 9.50 10.23 10.96 11.70
$ 56,551-100,000 34.45 6.10 6.86 7.63 8.39 9.15 9.92 10.68 11.44 12.20
$100,001-114,700 35.14 6.17 6.94 7.71 8.48 9.25 10.02 10.79 11.56 12.33
$114,701-117,950 36.01 6.25 7.03 7.81 8.60 9.38 10.16 10.94 11.72 12.50
$117,951-256,500 40.86 6.76 7.61 8.45 9.30 10.14 10.99 11.84 12.68 13.53
Over $256,500 44.34 7.19 8.09 8.98 9.88 10.78 11.68 12.58 13.48 14.37
</TABLE>
- -------
* The amounts shown represent 1995 Federal tax rates and 1994 Maryland tax
rates. Maryland has not yet published 1995 tax rates. The income amount shown
is income subject to Federal income tax reduced by adjustments to income,
exemptions, and itemized deductions (including the deduction for state income
tax). If the standard deduction had been taken for Federal income tax purposes
in order to reach the amount shown in the table, the taxable equivalent yield
required to equal a specified tax-exempt yield would be at least as great as
that shown in the table. It is assumed that the investor is not subject to the
alternative minimum tax. Where applicable, investors should take into account
the provisions of the Code under which the benefit of certain itemized
deductions and the benefit of personal exemptions are limited in the case of
higher income individuals. Under the Code, an individual taxpayer with
adjusted gross income in excess of a $114,700 threshold amount is subject to
an overall limitation on certain itemized deductions, requiring a reduction
equal to the lesser of (i) 3% of adjusted gross income in excess of the
$114,700 threshold amount or (ii) 80% of the amount of such itemized
deductions otherwise allowable. The benefit of each personal exemption is
phased out for married taxpayers filing a joint return with adjusted gross
income in excess of $172,050 and for single taxpayers with adjusted gross
income in excess of $114,700. Personal exemptions are phased out at the rate
of two percentage points for each $2,500 (or fraction thereof) of adjusted
gross income in excess of the applicable threshold amount. Maryland has
adopted provisions corresponding to the Federal law provisions limiting the
benefit of certain itemized deductions and phasing out the benefit of personal
exemptions. However, the Maryland threshold amounts and percentage reductions
differ from those applicable under Federal law. The Federal and Maryland tax
brackets, the threshold amounts at which itemized deductions are subject to
reduction, and the range over which personal exemptions are phased out will be
adjusted for inflation. The 36% of the 39.6% Federal tax brackets will,
however, be adjusted for inflation only for years after 1994.
C-17
<PAGE>
STATE OF NEW YORK**
1995 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 14,000 19.36% 4.96% 5.58% 6.20% 6.82% 7.44% 8.06% 8.68% 9.30% 9.92%
$ 14,001 to 28,000 20.21 5.01 5.64 6.27 6.89 7.52 8.15 8.77 9.40 10.03
$ 28,001 to 39,000 21.06 5.07 5.70 6.33 6.97 7.60 8.23 8.87 9.50 10.13
$ 39,001 to 94,250 33.13 5.98 6.73 7.48 8.22 8.97 9.72 10.47 11.22 11.96
$ 94,251 to 114,700 35.92 6.24 7.02 7.80 8.58 9.36 10.14 10.92 11.70 12.48
$114,701 to 143,600 36.78 6.33 7.12 7.91 8.70 9.49 10.28 11.07 11.86 12.65
$143,601 to 256,500 41.56 6.84 7.70 8.56 9.41 10.27 11.12 11.98 12.83 13.69
Over $256,500 45.01 7.27 8.18 9.09 10.00 10.91 11.82 12.73 13.64 14.55
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 7,000 19.36 4.96 5.58 6.20 6.82 7.44 8.06 8.68 9.30 9.92
$ 7,001 to 14,000 20.21 5.01 5.64 6.27 6.89 7.52 8.15 8.77 9.40 10.03
$ 14,001 to 23,350 21.06 5.07 5.70 6.33 6.97 7.60 8.23 8.87 9.50 10.13
$ 23,351 to 56,550 33.13 5.98 6.73 7.48 8.22 8.97 9.72 10.47 11.22 11.96
$ 56,551 to 114,700 35.92 6.24 7.02 7.80 8.58 9.36 10.14 10.92 11.70 12.48
$114,701 to 117,950 36.78 6.33 7.12 7.91 8.70 9.49 10.28 11.07 11.86 12.65
$117,951 to 256,500 41.56 6.84 7.70 8.56 9.41 10.27 11.12 11.98 12.83 13.69
Over $256,500 45.01 7.27 8.18 9.09 10.00 10.91 11.82 12.73 13.64 14.55
</TABLE>
- -------
Note: This table reflects the following:
1 Taxable income equals adjusted gross income less personal exemptions of
$2,500 less the standard deduction of $6,550 on a joint return or total
itemized deductions, whichever is greater. However under the provisions of
the Ominibus Budget Reconciliation Act of 1990, itemized deductions are
reduced by 3% of the amount of a taxpayer's AGI over $114,700. This is
reflected in the brackets above by higher effective federal tax rates.
Furthermore, personal exemptions are phased out for the amount of a
taxpayer's AGI over $114,700 for single taxpayers and $172,050 for married
taxpayers filing jointly. This latter provision is not incorporated into
the above brackets.
2 The combined effective rate is computed under the assumption that
taxpayers itemize their deductions on their federal income tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
C-18
<PAGE>
CITY OF NEW YORK***
1995 TAX YEAR
<TABLE>
<CAPTION>
TOTAL APPROX. COMBINED
NEW FEDERAL, STATE & TAX EXEMPT YIELD
TAXABLE YORK NEW YORK CITY 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
INCOME BRACKET* RATES TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 14,000 7.73% 21.57% 5.10% 5.74% 6.37% 7.01% 7.65% 8.29% 8.92% 9.56% 10.20%
$ 14,001 to 14,400 8.73 22.42 5.16 5.80 6.44 7.09 7.73 8.38 9.02 9.67 10.31
$ 14,401 to 27,000 9.13 22.76 5.18 5.83 6.47 7.12 7.77 8.41 9.06 9.71 10.36
$ 27,001 to 28,000 9.43 23.01 5.20 5.85 6.49 7.14 7.79 8.44 9.09 9.74 10.39
$ 28,001 to 39,000 10.43 23.85 5.25 5.91 6.57 7.22 7.88 8.54 9.19 9.85 10.51
$ 39,001 to 45,000 10.43 35.51 6.20 6.98 7.75 8.53 9.30 10.08 10.85 11.53 12.40
$ 45,001 to 94,250 10.48 35.54 6.21 6.98 7.76 8.53 9.31 10.08 10.86 11.64 12.41
$ 94,251 to 108,000 10.48 38.23 6.48 7.28 8.09 8.90 9.71 10.52 11.33 12.14 12.95
$108,001 to 114,700 10.53 38.26 6.48 7.29 8.10 8.91 9.72 10.53 11.34 12.15 12.96
$114,701 to 143,600 10.53 39.09 6.57 7.39 8.21 9.03 9.85 10.67 11.49 12.31 13.14
$143,601 to 256,500 10.53 43.70 7.11 7.99 8.88 9.77 10.66 11.55 12.43 13.32 14.21
Over $256,500 10.53 47.02 7.55 8.49 9.44 10.38 11.33 12.27 13.21 14.16 15.10
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 7,000 7.73 21.57 5.10% 5.74% 6.37% 7.01% 7.65% 8.29% 8.92% 9.56% 10.20%
$ 7,001 to 8,000 8.73 22.42 5.16 5.80 6.44 7.09 7.73 8.38 9.02 9.67 10.31
$ 8,001 to 14,000 9.13 22.76 5.18 5.83 6.47 7.12 7.77 8.41 9.06 9.71 10.36
$ 14,001 to 15,000 10.13 23.61 5.24 5.89 6.55 7.20 7.85 8.51 9.16 9.82 10.47
$ 15,001 to 23,350 10.43 23.86 5.25 5.91 6.57 7.22 7.88 8.54 9.19 9.85 10.51
$ 23,351 to 25,000 10.43 35.51 6.20 6.98 7.75 8.53 9.30 10.08 10.85 11.63 12.40
$ 25,001 to 56,550 10.48 35.54 6.21 6.98 7.76 8.53 9.31 10.08 10.86 11.64 12.41
$ 56,551 to 60,000 10.48 38.23 6.48 7.28 8.09 8.90 9.71 10.52 11.33 12.14 12.95
$ 60,001 to 114,700 10.53 38.26 6.48 7.29 8.10 8.91 9.72 10.53 11.34 12.15 12.96
$114,701 to 117,950 10.53 39.09 6.57 7.39 8.21 9.03 9.85 10.67 11.49 12.31 13.14
$117,951 to 256,500 10.53 43.70 7.11 7.99 8.88 9.77 10.66 11.55 12.43 13.32 14.21
Over $256,500 10.53 47.02 7.55 8.49 9.44 10.38 11.33 12.27 13.21 14.16 15.10
</TABLE>
- -------
Note: This table reflects the following:
1 Taxable income equals adjusted gross income less personal exemptions of
$2,500 less the standard deduction of $6,550 on a joint return or total
itemized deductions, whichever is greater. However under the provisions of
the Omnibus Budget Reconciliation Act of 1990, itemized deductions are
reduced by 3% of the amount of a taxpayer's AGI over $114,700. This is
reflected in the brackets above by higher effective federal tax rates.
Furthermore, personal exemptions are phased out for the amount of a
taxpayer's AGI over $114,700 for single taxpayers and $172,050 for married
taxpayers filing jointly. This latter provision is not incorporated into
the above brackets.
2 The combined effective rate is computed under the assumption that
taxpayers itemize their deductions on their federal income tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
C-19
<PAGE>
STATE OF PENNSYLVANIA
1995 TAX YEAR
<TABLE>
<CAPTION>
TAX-FREE YIELD
1995 TAX YEAR COMBINED FEDERAL 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
FEDERAL TAXABLE INCOME & STATE TAX RATE TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 39,000 17.38% 4.84% 5.45% 6.05% 6.66% 7.26% 7.87% 8.47% 9.08% 9.68%
$ 39,001 to 94,250 30.02% 5.72% 6.43% 7.14% 7.86% 8.57% 9.29% 10.00% 10.72% 11.43%
$ 94,251 to 114,700 32.93% 5.96% 6.71% 7.46% 8.20% 8.95% 9.69% 10.44% 11.18% 11.93%
$114,701 to 143,600 33.84% 6.05% 6.80% 7.56% 8.31% 9.07% 9.82% 10.58% 11.34% 12.09%
$143,601 to 256,500 38.84% 6.54% 7.36% 8.18% 8.99% 9.81% 10.63% 11.45% 12.26% 13.08%
Over $236,500 42.45% 6.95% 7.82% 8.69% 9.36% 10.43% 11.29% 12.16% 13.03% 13.90%
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 23,350 17.38% 4.84% 3.45% 6.05% 6.66% 7.26% 7.87% 8.47% 9.08% 9.68%
$ 23,351 to 56,550 30.02% 5.72% 6.43% 7.14% 7.86% 8.57% 9.29% 10.00% 10.72% 11.43%
$ 56,551 to 114,700 32.93% 3.96% 6.71% 7.46% 8.20% 8.95% 9.69% 10.44% 11.18% 11.93%
$114,701 to 117,950 33.84% 6.05% 6.80% 7.56% 8.31% 9.07% 9.82% 10.35% 11.34% 12.09%
$117,951 to 256,500 38.84% 6.54% 7.36% 8.18% 8.99% 9.81% 10.63% 11.45% 12.26% 13.08%
Over $256,500 42.43% 6.95% 7.82% 8.69% 9.56% 10.43% 11.29% 12.16% 13.03% 13.90%
</TABLE>
- -------
This table reflects the following:
1 Taxable income equals adjusted gross income less personal exemptions of
$2,500 less the standard deduction of $6,550 on a joint return or total
itemized deductions, whichever is greater. However under the provisions of
the Omnibus Budget Reconciliation act of 1990, itemized deductions are
reduced by 3% of the amount of a taxpayer's AGI over $114,700. This is
reflected in the brackets above by higher effective federal tax rates.
Furthermore, personal exemptions are phased out for the amount of a
taxpayer's AGI over $114,700 for single taxpayers and $172,050 for married
taxpayers filing jointly. This latter provision is not incorporated into the
above brackets.
2 The combined effective rate is computed under the assumption that taxpayers
itemize their deductions on their federal income tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates used
are the highest rates applicable to the income levels indicated within each
bracket.
C-20
<PAGE>
PROSPECTUS
THIS PROSPECTUS CONTAINS INFORMATION CONCERNING THE TRUST AND THE SPONSOR, BUT
DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENTS
AND EXHIBITS RELATING THERETO, WHICH THE TRUST HAS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION, WASHINGTON, D.C., UNDER THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
INDEX:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF ESSENTIAL INFORMATION........................................... A-2
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT.................................... A-4
UNDERWRITING............................................................... A-7
INDEPENDENT AUDITORS' REPORT............................................... A-8
STATEMENTS OF FINANCIAL CONDITION OF THE TAX EXEMPT SECURITIES TRUST....... A-9
PORTFOLIOS OF SECURITIES................................................... A-10
TAX EXEMPT SECURITIES TRUST................................................ B-1
THE TRUSTS................................................................ B-1
OBJECTIVES................................................................ B-1
PORTFOLIO................................................................. B-1
RISK FACTORS.............................................................. B-2
THE UNITS................................................................. B-12
TAXES..................................................................... B-12
EXPENSES AND CHARGES...................................................... B-14
PUBLIC OFFERING............................................................ B-15
OFFERING PRICE............................................................ B-15
METHOD OF EVALUATION...................................................... B-15
DISTRIBUTION OF UNITS..................................................... B-16
MARKET FOR UNITS.......................................................... B-16
EXCHANGE OPTION........................................................... B-16
REINVESTMENT PROGRAMS..................................................... B-17
SPONSOR'S AND UNDERWRITERS' PROFITS....................................... B-17
RIGHTS OF UNIT HOLDERS..................................................... B-17
CERTIFICATES.............................................................. B-17
DISTRIBUTION OF INTEREST AND PRINCIPAL.................................... B-18
REPORTS AND RECORDS....................................................... B-19
REDEMPTION OF UNITS....................................................... B-19
SPONSOR.................................................................... B-20
LIMITATIONS ON LIABILITY.................................................. B-21
RESPONSIBILITY............................................................ B-21
RESIGNATION............................................................... B-21
TRUSTEE.................................................................... B-21
LIMITATIONS ON LIABILITY.................................................. B-21
RESIGNATION............................................................... B-22
EVALUATOR.................................................................. B-22
LIMITATIONS ON LIABILITY.................................................. B-22
RESPONSIBILITY............................................................ B-22
RESIGNATION............................................................... B-22
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT........................... B-23
AMENDMENT................................................................. B-23
TERMINATION............................................................... B-23
LEGAL OPINION.............................................................. B-23
AUDITORS................................................................... B-23
BOND RATINGS............................................................... B-23
FEDERAL TAX FREE VS. TAXABLE INCOME........................................ B-25
THE STATE TRUSTS........................................................... C-1
TAX FREE VS. TAXABLE INCOME................................................ C-16
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH STATE.
TAX EXEMPT SECURITIES TRUST
------------
16,700 UNITS
------------
Prospectus
Dated February 9, 1995
------------
SPONSOR
SMITH BARNEY INC.
388 GREENWICH STREET
23RD FLOOR
NEW YORK, NEW YORK 10013
(800) 223-2532
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
A. The following information relating to the Depositor is incorporated by
reference to the SEC filings indicated and made a part of this Registration
Statement.
<TABLE>
<CAPTION>
SEC FILE OR
IDENTIFICATION NO.
-----------------------
<S> <C>
I. Bonding Arrangements and Date of Organization of the Depositor filed
pursuant to Items A and B of Part II of the Registration Statement on
Form S-6 under the Securities Act of 1993:
Smith Barney Inc. 2-55436
II. Information as to Officers and Directors of the Depositor filed pur-
suant to Schedules A and D of Form BD under Rules 15b1-1 and 15b3-1
of the Securities Exchange Act of 1934:
Smith Barney Inc. 8-8177
III. Charter documents of the Depositor filed as Exhibits to the Regis-
tration Statement on Form S-6 under the Securities Act of 1933
(Charter, By-Laws):
Smith Barney Inc. 33-65332, 33-36037
B. The Internal Revenue Service Employer Identification Numbers of the
Sponsor and Trustee are as follows:
Smith Barney Inc. 13-1912900
United States Trust Company of New York, Trustee 13-5459866
</TABLE>
UNDERTAKING
The Sponsor undertakes that (i) it will not instruct the Trustee to accept
from any insurance company affiliated with the Sponsor, in settlement of any
claim, less than an amount sufficient to pay any principal or interest (and, in
the case of a taxability redemption, premium) then due on any Security in
accordance with the municipal bond guaranty insurance policy attached to that
Security or (ii) any affiliate of the Sponsor who has any obligation with
respect to any Security, less than the full amount due pursuant to the
obligation, unless those instructions have been approved by the Securities and
Exchange Commission pursuant to Rule 17d-1 under the Investment Company Act of
1940.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
THE REGISTRATION STATEMENT ON FORM S-6 COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:
The facing sheet of Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Registration Statement of Tax Exempt Securities Trust, Series
384, 1933 Act File No. 33-50915).
The Prospectus.
Additional Information not included in the Prospectus (Part II).
Consent of Independent Auditors.
The following exhibits:
<TABLE>
<C> <S>
1.1 --Form of Trust Indenture and Agreement (incorporated by reference to
Exhibit 4.a to the Registration Statement of Tax Exempt Securities
Trust, Series 265, 1933 Act File No. 33-15123).
1.1.1 --Form of Reference Trust Agreement (incorporated by reference to
Exhibit 1.1.1 of Tax Exempt Securities Trust, New York Trust 138, 1933
Act File No. 33-55925).
1.2 --Form of Agreement Among Underwriters (incorporated by reference to
Exhibit 99 to the Registration Statement of Tax Exempt Securities
Trust, Series 384, 1933 Act File No. 33-50915).
2.1 --Form of Certificate of Beneficial Interest (included in Exhibit 1.1).
3.1 --Opinion of counsel as to the legality of the securities being issued
including their consent to the use of their name under the headings
"Taxes", "Legal Opinion" and "New York Taxes" in the Prospectus.
4.1 --Consent of the Evaluator.
5.1 --Consent of KPMG Peat Marwick LLP to the use of their name under the
heading "Auditors" in the Prospectus.
</TABLE>
II-2
<PAGE>
SIGNATURES
The registrant, Tax Exempt Securities Trust, National Trust 201, Connecticut
Trust 97, Maryland Trust 94, New York Trust 140 and Pennsylvania Trust 113,
hereby identifies Series 1 and Series 357 of the Tax Exempt Securities Trust
for purposes of the representations required by Rule 487 and represents the
following:
(1) That the portfolio securities deposited in the series as to the
securities of which this Registration Statement is being filed do not
differ materially in type or quality from those deposited in such previous
series;
(2) That, except to the extent necessary to identify the specific
portfolio securities deposited in, and to provide essential financial
information for, the series with respect to the securities of which this
Registration Statement is being filed, this Registration Statement does not
contain disclosures that differ in any material respect from those
contained in the registration statements for such previous series as to
which the effective date was determined by the Commission or the staff; and
(3) That is has complied with Rule 460 under the Securities Act of 1933.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, AND STATE OF NEW YORK, ON THE 9TH DAY OF FEBRUARY, 1995.
Signatures appear on page II-4.
A majority of the members of the Board of Directors of Smith Barney Inc. has
signed this Registration Statement or Amendment to the Registration Statement
pursuant to Powers of Attorney authorizing the person signing this Registration
Statement or Amendment to the Registration Statement to do so on behalf of such
members.
II-3
<PAGE>
Smith Barney Inc., Depositor
/s/ George S. Michinard, Jr.
By .................................
(GEORGE S. MICHINARD, JR.)
By the following persons*, who
constitute a majority of the
directors of Smith Barney Inc.:
Steven D. Black
James S. Boshart III
Robert A. Case
James Dimon
Robert Druskin
Robert F. Greenhill
Jeffrey B. Lane
Robert H. Lessin
Jack L. Rivkin
/s/ George S. Michinard, Jr.
By ..................................
(GEORGE S. MICHINARD, JR.,
ATTORNEY-IN-FACT)
- --------
* Pursuant to Powers of Attorney filed under the 1933 Act file Numbers 33-
56722 and 33-51999.
II-4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Statements
of Financial Conditions and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000932600
<NAME> NATIONAL TRUST 201
<SERIES>
<NUMBER> 1
<NAME> NATIONAL TRUST 201
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-01-1995
<PERIOD-END> FEB-08-1995
<INVESTMENTS-AT-COST> 5,706,865
<INVESTMENTS-AT-VALUE> 5,706,865
<RECEIVABLES> 63,849
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,770,714
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,849
<TOTAL-LIABILITIES> 63,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,770,714
<SHARES-COMMON-STOCK> 6,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,706,865
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,706,865
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Statements
of Financial Conditions and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000928244
<NAME> CONNECTICUT TRUST 97
<SERIES>
<NUMBER> 2
<NAME> CONNECTICUT TRUST 97
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-01-1995
<PERIOD-END> FEB-08-1995
<INVESTMENTS-AT-COST> 2,644,861
<INVESTMENTS-AT-VALUE> 2,644,861
<RECEIVABLES> 31,238
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,676,099
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,238
<TOTAL-LIABILITIES> 31,238
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,676,099
<SHARES-COMMON-STOCK> 2,700
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,644,861
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,700
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,644,861
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Statements
of Financial Conditions and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000928251
<NAME> MARYLAND TRUST 94
<SERIES>
<NUMBER> 3
<NAME> MARYLAND TRUST 94
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-01-1995
<PERIOD-END> FEB-08-1995
<INVESTMENTS-AT-COST> 2,077,424
<INVESTMENTS-AT-VALUE> 2,077,424
<RECEIVABLES> 14,547
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,091,971
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,547
<TOTAL-LIABILITIES> 14,547
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,077,474
<SHARES-COMMON-STOCK> 2,250
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,077,424
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,250
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,077,424
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Statements
of Financial Conditions and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000932586
<NAME> NEW YORK TRUST 140
<SERIES>
<NUMBER> 4
<NAME> NEW YORK TRUST 140
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-01-1995
<PERIOD-END> FEB-08-1995
<INVESTMENTS-AT-COST> 2,859,046
<INVESTMENTS-AT-VALUE> 2,859,046
<RECEIVABLES> 34,776
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,893,822
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,776
<TOTAL-LIABILITIES> 34,776
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,893,822
<SHARES-COMMON-STOCK> 3,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,859,046
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,859,046
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Statements
of Financial Conditions and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000932592
<NAME> PENNSYLVANIA TRUST 113
<SERIES>
<NUMBER> 5
<NAME> PENNSYLVANIA TRUST 113
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-01-1995
<PERIOD-END> FEB-08-1995
<INVESTMENTS-AT-COST> 2,675,393
<INVESTMENTS-AT-VALUE> 2,675,393
<RECEIVABLES> 40,059
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,715,452
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40,059
<TOTAL-LIABILITIES> 40,059
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,715,452
<SHARES-COMMON-STOCK> 2,750
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,675,393
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,750
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,675,393
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 3.1
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
February 8, 1995
Tax Exempt Securities Trust
National Trust 201
Connecticut Trust 97
Maryland Trust 94
New York Trust 140
Pennsylvania Trust 113
Smith Barney Inc.
Dear Sirs:
We have acted as special counsel for you, as sponsor (the "Sponsor") of the
National Trust, the Connecticut Trust, the Maryland Trust, the New York Trust,
and the Pennsylvania Trust of Tax Exempt Securities Trust (the "Trusts"), in
connection with the issuance of units of fractional undivided interest in the
Trusts (the "Units") in accordance with the Trust Indenture and Agreement and
related Reference Trust Agreement relating to the Trusts (the "Indenture").
We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents and instruments as
we have deemed necessary or advisable for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that (i) the execution and
delivery of the Indenture and the issuance of the Units have been duly
authorized by the Sponsor and (ii) the Units, when duly issued and delivered by
the Sponsor and the Trustee in accordance with the Indenture, will be legally
issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 3.1 to the
Registration Statement relating to the Units filed under the Securities Act of
1933 and to the use of our name in such Registration Statement and in the
related prospectus under the headings "Taxes", "New York Taxes" and "Legal
Opinion".
Very truly yours,
Davis Polk & Wardwell
<PAGE>
EXHIBIT 4.1
KENNY S&P EVALUATION SERVICES
A Division of J.J. Kenny Co., Inc.
65 Broadway
New York, New York 10006-2511
Telephone: 212/770-4900
John R. Fitzgerald
Vice President
February 8, 1995
Smith Barney Inc.
1345 Avenue of the Americas
New York, N.Y. 10105
United States Trust Company
114 W. 47th Street
New York, N.Y. 10036
Re: Tax-Exempt Securities Trust
National Trust 201
Connecticut Trust 97
Maryland Trust 94
New York Trust 140
Pennsylvania Trust 113
Gentlemen:
We have examined Registration Statement File Nos. 33-57447, 55009, 55105,
56631, and 56645 (respectively) for the above-captioned trusts. We hereby
acknowledge that Kenny S&P Evaluation Services, a division of J.J. Kenny Co.,
Inc. is currently acting as the evaluator for the trusts. We hereby consent to
the use in the Registration Statement of the reference to Kenny S&P Evaluation
Services, a division of J.J. Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings indicated in the Registration
Statement for the respective bonds comprising the trust portfolios are the
ratings indicated in our KENNYBASE database.
You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.
Sincerely,
John R. Fitzgerald
Vice President
<PAGE>
EXHIBIT 5.1
CONSENT OF INDEPENDENT AUDITORS
To the Sponsor, Trustee and Unit Holders of
Tax Exempt Securities Trust, National Trust 201, Connecticut Trust 97,
Maryland Trust 94, New York Trust 140 and Pennsylvania Trust 113:
We consent to the use of our report dated February 8, 1995 included herein
and to the reference to our firm under the heading "Auditors" in the
Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
February 8, 1995
