<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996
REGISTRATION NOS. 333-14909
333-10131
333-14905
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
MARYLAND TRUST 99
NEW JERSEY TRUST 129
NEW YORK TRUST 159
B. NAME OF DEPOSITOR:
SMITH BARNEY INC.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
LAURIE A. HESSLEIN
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
COPY TO:
MICHAEL R. ROSELLA, ESQ.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
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*
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.
- --------
* Previously Paid.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------
TAX EXEMPT Maryland Trust 99
SECURITIES
TRUST
New Jersey Trust 129 New York Trust 159
- ---------------------- ---------------------------------------------------
9,000 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 Maryland Trust 99, New Jersey Trust 129 and New York Trust
159 (the "Maryland Trust," the "New Jersey Trust," and the "New York 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 to obtain for its Unit
holders tax-exempt interest income and conservation of capital through
investment in a professionally selected, 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 December 19, 1996, the Public
Offering Price per Unit (including the sales charge) would have been $1,030.33,
$1,023.56 and $1,025.17 for the Maryland Trust, New Jersey Trust and New York
Trust respectively. In addition, there will be added an amount equal to accrued
interest commencing on the day after the Date of Deposit through the date of
settlement (normally three 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 will be
able to dispose of his Units through redemption, at prices that are also based
upon the aggregate bid price of the underlying bonds. Units can be sold at any
time without fee or penalty.
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 December 20, 1996
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF DECEMBER 19, 1996 +
SPONSOR RECORD DATES
Smith Barney Inc.
The first day of each month,
commencing January 1, 1997
TRUSTEE
DISTRIBUTION DATES
The Chase Manhattan Bank
The fifteenth day of each
month,** commencing January 15,
1997
EVALUATOR
Kenny S & P Evaluation
Services, EVALUATION TIME
a business unit of J.J. Kenny
Company, Inc.
As of 1:00 P.M. on the Date of
Deposit. Thereafter, as of
4:00 P.M. New York Time.
DATE OF DEPOSIT AND OF TRUST
AGREEMENT
EVALUATOR'S FEE
December 19, 1996
The Evaluator will receive a
MANDATORY TERMINATION DATE* fee of $.29 per bond per
evaluation. (See Part B,
"Evaluator--Responsibility"
and "Public Offering--Offering
Price".)
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 $1.83, $1.80 and $1.85 for the
Maryland Trust, New Jersey Trust and New York Trust, respectively, will be
made on January 15, 1997.
*** 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>
MARYLAND NEW JERSEY NEW YORK
TRUST 99 TRUST 129 TRUST 159
---------- ---------- ----------
<S> <C> <C> <C>
Principal Amount of Bonds in Trust......... $2,000,000 $2,000,000 $5,000,000
Number of Units............................ 2,000 2,000 5,000
Principal Amount of Bonds in Trust per
Unit...................................... $ 1,000 $ 1,000 $ 1,000
Fractional Undivided Interest in Trust per
Unit...................................... 1/2,000 1/2,000 1/5,000
Minimum Value of Trust:
Trust Agreement may be Terminated if
Principal Amount is less than........... $1,000,000 $1,000,000 $2,500,000
Calculation of Public Offering Price per
Unit*:
Aggregate Offering Price of Bonds in
Trust................................... $1,963,806 $1,950,895 $4,884,967
========== ========== ==========
Divided by Number of Units............... $ 981.90 $ 975.45 $ 976.99
Plus: Sales Charge (4.70% of the Public
Offering Price)......................... $ 48.43 $ 48.11 $ 48.18
---------- ---------- ----------
Public Offering Price per Unit........... $ 1,030.33 $ 1,023.56 $ 1,025.17
Plus: Accrued Interest*.................. $ 1.06 $ 1.05 $ 1.08
---------- ---------- ----------
Total.................................. $ 1,031.39 $ 1,024.61 $ 1,026.25
========== ========== ==========
Sponsor's Initial Repurchase Price per Unit
(per Unit Offering
Price of Bonds)*......................... $ 981.90 $ 975.45 $ 976.99
Approximate Redemption Price per Unit (per
Unit Bid Price of Bonds)**.............. $ 976.90 $ 971.34 $ 970.49
---------- ---------- ----------
Difference Between per Unit Offering and
Bid Prices of Bonds....................... $ 5.00 $ 4.11 $ 6.50
========== ========== ==========
Calculation of Estimated Net Annual Income
per Unit:
Estimated Annual Income per Unit......... $ 57.41 $ 56.69 $ 58.07
Less: Estimated Trustee's Annual Fee***.. $ 1.08 $ 1.34 $ 1.33
Less: Organizational Expenses****........ $ .50 $ .50 $ .50
Less: Other Estimated Annual Expenses.... $ .87 $ .61 $ .56
---------- ---------- ----------
Estimated Net Annual Income per Unit..... $ 54.96 $ 54.24 $ 55.68
========== ========== ==========
Calculation of Monthly Income Distribution
per Unit:
Estimated Net Annual Income per Unit.... $ 54.96 $ 54.24 $ 55.68
Divided by 12............................ $ 4.58 $ 4.52 $ 4.64
Accrued interest from the day after the
Date of Deposit to the first record
date**.................................. $ 1.83 $ 1.80 $ 1.85
First distribution per unit................ $ 1.83 $ 1.80 $ 1.85
Daily Rate (360-day basis) of Income Ac-
crual per Unit............................ $ .1526 $ .1506 $ .1546
Estimated Current Return based on Public
Offering Price*****....................... 5.33% 5.30% 5.43%
Estimated Long-Term Return*****............ 5.20% 5.13% 5.45%
</TABLE>
- -------
* Accrued interest will be commencing on the day after the Date of Deposit
through the date of settlement (normally three business days after
purchase).
** This figure will also include accrued interest from the day after the
Date of Deposit to the date of settlement (normally three business days
after purchase) and the net 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.")
**** Each Trust (and therefore the investors) will bear all or a portion of
its organizational costs--including costs of preparing the registration
statement, the trust indenture and other closing documents, registering
units with the SEC and the states and the initial audit of the Trust--as
is common for mutual funds. Historically, the Sponsors of unit investment
trusts have paid all the costs of establishing those trusts. Advertising
and selling expenses will be paid by the Underwriters at no cost to a
Trust.
***** The Estimated Current Return is calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit.
The Estimated Net Annual Interest Income per Unit will vary with changes
in fees and expenses of the Trustee and the Evaluator and with the
principal prepayment, redemption, maturity, exchange or sale of Bonds
while the Public Offering Price will vary with changes in the offering
price of the underlying Bonds; therefore, there is no assurance that the
present Estimated Current Return indicated above will be realized in the
future. The Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration, and factors in the relative
weightings of, the market values, yields (which takes into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account
the expenses and sales charge associated with each Unit. Since the market
values and estimated retirements of the Bonds and the expenses of the
Trust will change, there is no assurance that the present Estimated Long-
Term Return as indicated above will be realized in the future. The
Estimated Current Return and Estimated Long-Term Return are expected to
differ because the calculation of the Estimated Long-Term Return reflects
the estimated date and amount of principal returned while the Estimated
Current Return calculations include only Net Annual Interest Income and
Public Offering Price as of the Date of Deposit.
A-3
<PAGE>
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT
MARYLAND TRUST 99
The Portfolio of the Maryland Trust contains 7 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 12.6%* of the Bonds in the Trust) and was issued to finance
highway facilities. 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: 26.2%; and housing facilities: 61.2%. 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.) 9.4% of the Bonds in this Trust are insured as to timely
payment of principal and interest by certain insurance companies (Connie Lee,
9.4%) (see Part B, "Tax Exempt Securities Trust--Risk Factors--Insurance").
Three 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 27.8 years.
As of the Date of Deposit, 53.8% of the Bonds in this Trust are rated by
Standard & Poor's (41.2% rated AAA and 12.6% rated A); and 46.2% are rated by
Moody's (29.4% rated Aa and 16.8% 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 JERSEY TRUST 129
The Portfolio of the New Jersey Trust contains 7 issues of Bonds of issuers
located in the State of New Jersey 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 10.4%* of the Bonds in the Trust) and was issued to finance
highway facilities. 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: 27.3%; housing facilities: 27.2%; transportation
facilities: 9.6%; pollution control facilities: 12.5; and lease rental
payments: 13.0%. 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.) 12.5% of the Bonds in
this Trust are insured as to timely payment of principal and interest by
certain insurance companies (MBIA, 12.5%) (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 New Jersey Trust is 30.3 years.
As of the Date of Deposit, 71.5% of the Bonds in this Trust are rated by
Standard & Poor's (12.5% rated AAA, 9.6% rated AA and 49.4% rated A); and
28.5% 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.
12.5% of the Bonds in the New Jersey 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 159
The Portfolio of the New York Trust contains 15 issues of Bonds of issuers
located in the State of New York. Three of the issues (representing
approximately 11.3%* of the Bonds in the Trust) are general obligations of
governmental entities and are backed by the taxing power of those entities.
The remaining issues are payable from the income of specific projects or
authorities and are not supported
- -------
*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>
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: 10.5%; housing facilities: 2.0%;
industrial development facilities: 5.4%; educational facilities: 29.4%;
correctional facilities: 17.2%; special tax: 9.8%; sales tax: 4.0%; lease
rental payments: 10.4%. The Trust is considered to be concentrated in
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.) Fourteen 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 27.4 years.
As of the Date of Deposit, 16.8% of the Bonds in this Trust are rated by
Standard & Poor's (12.8% rated AA and 4.0% rated A); 20.1% are rated A by
Moody's; and 63.1% 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.
9.9% 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>
UNDERWRITING
The names and addresses of the Underwriters and the number of Units to be
sold by them are as follows:
<TABLE>
<CAPTION>
UNITS
-----------------------------
MARYLAND NEW JERSEY NEW YORK
TRUST 99 TRUST 129 TRUST 159
-------- ---------- ---------
<S> <C> <C> <C>
Smith Barney Inc. ................................ 1,800 1,800 3,700
388 Greenwich Street
New York, New York 10013
Oppenheimer & Co., Inc. .......................... -- 100 500
Oppenheimer Tower
One World Financial Center
New York, New York 10281
Gruntal & Co. Incorporated........................ 100 100 250
14 Wall Street
New York, New York 10005
Roosevelt & Cross, Inc. .......................... 100 -- 250
20 Exchange Place
New York, New York 10005
Bear, Stearns & Co. Inc. ......................... -- -- 300
245 Park Avenue
New York, New York 10167
----- ----- -----
Total............................................. 2,000 2,000 5,000
===== ===== =====
</TABLE>
A-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and Unit Holders of Tax Exempt Securities Trust,
Maryland Trust 99, New Jersey Trust 129 and New York Trust 159:
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, Maryland Trust 99, New Jersey Trust 129 and New York
Trust 159 as of December 19, 1996. These financial statements are the
responsibility of the Trustee (see note 6 to the statements of financial
condition). Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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
December 19, 1996 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, Maryland Trust 99,
New Jersey Trust 129 and New York Trust 159 as of December 19, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
December 19, 1996
A-7
<PAGE>
TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, DECEMBER 19, 1996
<TABLE>
<CAPTION>
TRUST PROPERTY
--------------------------------
MARYLAND NEW JERSEY NEW YORK
TRUST 99 TRUST 129 TRUST 159
---------- ---------- ----------
<S> <C> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts
backed by letter of credit (1)............. $1,963,806 $1,950,895 $4,884,967
Accrued interest through the Date of Deposit
on underlying bonds (1)(2)................... 29,553 27,121 92,552
Organizational costs (3)...................... 5,000 5,000 12,500
---------- ---------- ----------
Total..................................... $1,998,359 $1,983,016 $4,990,019
========== ========== ==========
<CAPTION>
LIABILITIES AND INTEREST OF UNIT
HOLDERS
--------------------------------
<S> <C> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit
on
underlying bonds (1)(2).................... $ 29,553 $ 27,121 $ 92,552
Accrued expenses (3)........................ 5,000 5,000 12,500
---------- ---------- ----------
34,553 32,121 105,052
---------- ---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest out-
standing (Maryland Trust 99: 2,000;
New Jersey Trust 129: 2,000; New York Trust
159: 5,000)
Cost to investors (4)...................... 2,060,661 2,047,113 5,125,894
Less--Gross underwriting commission (5).... 96,855 96,218 240,927
---------- ---------- ----------
Net amount applicable to investors......... 1,963,806 1,950,895 4,884,967
---------- ---------- ----------
Total..................................... $1,998,359 $1,983,016 $4,990,019
========== ========== ==========
</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 December 19, 1996, 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 $11,000,000 which was
deposited with the Trustee for the purchase of $9,000,000 principal amount
of Bonds pursuant to contracts to purchase such Bonds at the Sponsor's
aggregate cost of $8,799,668 plus $149,226 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) Organizational costs to be paid by the Trusts have been deferred and will
be amortized over five years.
(4) Aggregate public offering price (exclusive of interest) computed on 2,000,
2,000 and 5,000 Units of Maryland Trust, New Jersey Trust and New York
Trust, respectively, on the basis set forth in Part B, "Public Offering--
Offering Price."
(5) Sales charge of 4.70% computed on 2,000, 2,000 and 5,000 Units of Maryland
Trust, New Jersey Trust and New York Trust, respectively, on the basis set
forth in Part B, "Public Offering--Offering Price."
(6) The Trustee has custody of and responsibility for all accounting and
financial books, records, financial statements and related data of each
Trust and is responsible for establishing and maintaining a system of
internal controls directly related to, and designed to provide reasonable
assurance as to the integrity and reliability of, financial reporting of
each Trust. The Trustee is also responsible for all estimates 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-8
<PAGE>
TAX EXEMPT SECURITIES TRUST
MARYLAND TRUST 99--PORTFOLIO OF SECURITIES AS OF DECEMBER 19, 1996
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL SECURITIES REPRESENTED BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- -------------------------------------------- ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 200,000 Maryland Health and AAA 7/1/03 @ 100 $ 184,812 5.550% $ 10,000
Higher Educational SF 7/1/19 @ 100
Facilities Authority
Revenue Bonds,
Montgomery General
Hospital Issue, Connie
Lee Insured, 5.00% Due
7/1/2023
2. 305,000 Community Development Aa* 5/15/03 @ 102 323,181 5.600 19,825
Administration, SF 5/15/06 @ 100
Department of Housing
and Community
Development, State of
Maryland, Multi-Family
Housing Revenue Bonds,
6.50% Due 5/15/2013
3. 250,000 Community Development Aa* 1/1/07 @ 102 253,207 5.800 14,875
Administration, Maryland SF 1/1/17 @ 100
Department of Housing
and Community
Development, Housing
Revenue Bonds, 5.95% Due
7/1/2023
4. 220,000 County Commissioners of AAA 10/1/06 @ 102 221,815 6.000 13,420
Charles County, SF 4/1/17 @ 100
Maryland, Mortgage
Revenue Refunding Bonds,
Fox Chase Apartments
Project, FHA Insured,
6.10% Due 10/1/2027
5. 400,000 Howard County, Maryland, AAA 7/1/06 @ 102 403,284 6.000 24,400
Mortgage Revenue SF 1/1/18 @ 100
Refunding Bonds, FHA
Insured Mortgage Loan -
Normandy Woods III
Apartments Project,
6.10% Due 7/1/2025
6. 350,000 Prince George's County, A* 7/1/04 @ 102 330,656 5.700 18,550
Maryland, Project and SF 7/1/15 @ 100
Refunding Revenue Bonds,
Dimensions Health
Corporation Issue, 5.30%
Due 7/1/2024
7. 275,000 Puerto Rico Highway and A 7/1/16 @ 100 246,851 5.650 13,750
Transportation SF 7/1/27 @ 100
Authority, Highway
Revenue Bonds, 5.00%
Due 7/1/2036
---------- ---------- --------
$2,000,000 $1,963,806 $114,820
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-9
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW JERSEY TRUST 129--PORTFOLIO OF SECURITIES AS OF DECEMBER 19, 1996
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL SECURITIES REPRESENTED BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- -------------------------------------------- ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 310,000 New Jersey Economic Aa3* 4/1/06 @ 102 $ 301,075 5.700% $ 17,050
Development Authority
Revenue Bonds, Morris
Hall/
St. Lawrence, Inc.
Project, 5.50%
Due 4/1/2027
2. 250,000 New Jersey Health Care A 7/1/03 @ 102 231,415 5.700 12,500
Facilities Financing SF 7/1/08 @ 100
Authority Revenue Bonds,
Chilton Memorial
Hospital Issue, 5.00%
Due 7/1/2013
3. 500,000 New Jersey Housing and A+ 11/1/02 @ 102 531,295 5.700 33,500
Mortgage Finance Agency, SF 5/1/15 @ 100
Housing Revenue
Refunding Bonds, 6.70%
Due 11/1/2028
4. 250,000 New Jersey Sports & Aa* 3/1/02 @ 100 254,433 5.600 15,000
Exposition Authority, SF 3/1/20 @ 100
State Contract Bonds,
6.00% Due 3/1/2021
5. 250,000 The Pollution Control AAA 11/1/03 @ 102 244,230 5.700 13,875
Financing Authority of
Salem County, New
Jersey, Pollution
Control Revenue
Refunding Bonds, Public
Service Electric and Gas
Company Project, MBIA
Insured, 5.55% Due
11/1/2033
6. 215,000 The Port Authority of AA- 1/15/04 @ 101 186,478 5.650 10,212
New York and New Jersey SF 7/15/25 @ 100
Consolidated Bonds,
4.75%
Due 1/15/2029
7. 225,000 Puerto Rico Highway and A 7/1/16 @ 100 201,969 5.650 11,250
Transportation SF 7/1/27 @ 100
Authority, Highway
Revenue Bonds, 5.00% Due
7/1/2036
---------- ---------- --------
$2,000,000 $1,950,895 $113,387
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-10
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW YORK TRUST 159--PORTFOLIO OF SECURITIES AS OF DECEMBER 19, 1996
<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. $ 60,000 The City of New York, A-** 2/15/05 @ 101 $ 62,815 5.985% $ 3,975
General Obligation SF 2/15/20 @ 100
Bonds, 6.625% Due
2/15/2025
2. 250,000 The City of New York, A-** 8/15/06 @ 101.5 244,888 6.150 15,000
General Obligation SF 8/15/17 @ 100
Bonds, 6.00% Due
8/15/2026
3. 250,000 The City of New York, A-** 2/15/06 @ 101.5 245,055 6.150 15,000
General Obligation SF 2/15/20 @ 100
Bonds, 6.00% Due
2/15/2024
4. 250,000 New York City Industrial AA 7/1/02 @ 102 263,667 5.600 16,250
Development Agency, SF 7/1/11 @ 100
Civic Facility Revenue
Bonds, The Lighthouse,
Inc. Project, 6.50% Due
7/1/2022
5. 190,000 New York Local A 4/1/05 @ 102 194,368 5.700 11,400
Government Assistance SF 4/1/17 @ 100
Corporation Bonds, 6.00%
Due 4/1/2024
6. 260,000 Dormitory Authority of AA 8/1/06 @ 102 264,329 5.800 15,600
the State of New York, SF 2/1/15 @ 100
German Masonic Home
Corporation, Dumont
Masonic Home, FHA-
Insured Mortgage Revenue
Bonds, 6.00% Due
8/1/2036
7. 255,000 Dormitory Authority of A** 7/1/06 @ 102 250,474 5.900 14,662
the State of New York, SF 7/1/13 @ 100
Department of Health of
the State of New York
Revenue Bonds, 5.75% Due
7/1/2017
8. 500,000 Dormitory Authority of A** 7/1/06 @ 102 496,560 6.050 30,000
the State of New York, SF 7/1/23 @ 100
City University System
Consolidated Third
General Resolution
Bonds, 6.00% Due
7/1/2026
9. 500,000 Dormitory Authority of A** 5/15/04 @ 102 463,575 5.950 27,000
the State of New York, SF 5/15/14 @ 100
State University
Educational Facilities
Revenue Bonds, 5.40% Due
5/15/2023
10. 500,000 Dormitory Authority of A** 7/1/04 @ 102 477,760 6.050 28,500
the State of New York SF 7/1/15 @ 100
Revenue Bonds, Upstate
Community Colleges,
5.70% Due 7/1/2021
11. 100,000 Housing New York AA 11/1/03 @ 102 96,141 5.800 5,500
Corporation Revenue SF 11/1/19 @ 100
Refunding Bonds, 5.50%
Due 11/1/2020
12. 135,000 New York State Urban A** 1/1/04 @ 102 123,125 6.050 7,256
Development Corporation, SF 1/1/14 @ 100
Correctional Capital
Facilities Revenue
Bonds, 5.375% Due
1/1/2023
13. 750,000 New York State Urban A** 1/1/07 @ 102 718,830 6.000 42,750
Development Corporation, SF 1/1/17 @ 100
Empire State Development
Corporation,
Correctional Capital
Facilities Revenue
Bonds, 5.70% Due
1/1/2027
14. 500,000 34th Street Partnership, A1* 1/1/03 @ 102 476,740 5.850 27,500
Inc., 34th Street SF 1/1/15 @ 100
Business Improvement
District, Capital
Improvement Bonds, 5.50%
Due 1/1/2023
15. 500,000 United Nations A* 7/1/03 @ 102 506,640 5.800 30,000
Development Corporation, SF 7/1/13 @ 100
New York, Refunding
Bonds, 6.00% Due
7/1/2026
---------- ---------- --------
$5,000,000 $4,884,967 $290,393
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-11
<PAGE>
NOTES TO PORTFOLIOS OF SECURITIES
(1)For a description of the meaning of the applicable rating symbols as
published by Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., Moody's Investors Service(*) and Fitch Investor Services, Inc.(**),
see Part B, "Bond Ratings".
(2) There is shown under this heading the year in which each issue of Bonds
initially is redeemable and the redemption price for that year; unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter, but not below par. "SF" indicates a sinking fund has been
or will be established with respect to an issue of Bonds. The prices at
which Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to a Trust. Certain Bonds in a Portfolio, including Bonds listed as
not being subject to redemption provisions, may be redeemed in whole or in
part other than by operation of the stated redemption or sinking fund
provision under certain unusual or extraordinary circumstances specified in
the instruments setting forth the terms and provisions of such Bonds. For
example, see discussion of obligations of housing authorities in Part B,
"Tax Exempt Securities Trust--Portfolio."
(3) Contracts to purchase Bonds were entered into during the period September
26, 1996, through December 19, 1996, with the final settlement date on
December 26, 1996. The Profit to the Sponsor on Deposit totals $20,284,
$24,499 and $59,891 for the Maryland Trust, New Jersey Trust and New York
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 Maryland Trust,
New Jersey Trust and New York Trust on December 19, 1996, was $1,953,806,
$1,942,670 and $4,852,467, respectively.
A-12
<PAGE>
PROSPECTUS--PART B:
- --------------------------------------------------------------------------------
NOTE THAT PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED
BY PART A.
- --------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST
THE TRUSTS
For over 20 years, Tax Exempt Securities Trust has specialized in quality
municipal bond investments designed to meet a variety of investment objectives
and tax situations. Tax Exempt Securities Trust is a convenient and cost
effective alternative to individual bond purchases. Each Trust is one of a
series of similar but separate unit investment trusts 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, The Chase Manhattan Bank, as
Trustee, and Kenny S&P Evaluation Services, a business unit of J.J. Kenny
Company, Inc., as Evaluator. Each Trust containing Bonds of a State for which
such Trust is named (a "State Trust") and each National Trust, 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
A tax-exempt unit investment trust provides many of the same benefits as
individual bond purchases, while the Unit holder avoids the complexity of
analyzing, selecting and monitoring a multi-bond portfolio. 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 Sponsor's investment professionals select Bonds for the Trust portfolios
from among the 200,000 municipal bond issues that vary according to bond
purpose, credit quality and years to maturity. The following factors, among
others, were considered in selecting the Bonds for each Trust: (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 (including alternative
minimum 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 regular 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 are rated
A or better by a major bond rating agency, (4) the Bonds were chosen, in part,
on the basis of their respective maturity dates and offer a degree of call
protection, (5) 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 (6) 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
B-1
<PAGE>
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" for information relating to the
particular Trust. 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.
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 any of the 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 indicated in the "Summary of Essential Information"
in Part A.
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
B-2
<PAGE>
the interest coupons thereon represented then prevailing interest rates on
comparably rated Bonds then newly issued. Bonds selling at market discounts
tend to increase in market value as they approach maturity when the principal
amount is payable. A market discount tax-exempt Bond held to maturity will have
a larger portion of its total return in the form of taxable ordinary income and
less in the form of tax-exempt income than a comparable Bond bearing interest
at current market rates. Under the provisions of the Internal Revenue Code in
effect on the date of this Prospectus any ordinary income attributable to
market discount will be taxable but will not be realized until maturity,
redemption or sale of the Bonds or Units.
As set forth under "Portfolio Summary as of Date of Deposit", the 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 but not
limited to the level of payments received from private third-party payors and
government programs and the cost of providing health care services.
B-3
<PAGE>
A significant portion of the revenues of hospitals and other health care
facilities is derived from private third-party payors and government programs,
including the Medicare and Medicaid programs. Both private third-party payors
and government programs have undertaken cost containment measures designed to
limit payments made to health care facilities. Furthermore, government programs
are subject to statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
materially decrease the rate of program payments for health care facilities.
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 has engaged in a program of 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 may 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.
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All single family mortgage revenue bonds and certain multi-family housing
revenue bonds are prepayable over the life of the underlying mortgage or
mortgage pool, and therefore the average life of housing obligations cannot be
determined. However, the average life of these obligations will ordinarily be
less than their stated maturities. Single-family issues are subject to
mandatory redemption in whole or in part from prepayments on underlying
mortgage loans; mortgage loans are frequently partially or completely prepaid
prior to their final stated maturities as a result of events such as declining
interest rates, sale of the mortgaged premises, default, condemnation or
casualty loss. Multi-family issues are characterized by mandatory redemption at
par upon the occurrence of monetary defaults or breaches of covenants by the
project operator. Additionally, housing obligations are generally subject to
mandatory partial redemption at par to the extent that proceeds from the sale
of the obligations are not allocated within a stated period (which may be
within a year of the date of issue). To the extent that these obligations were
valued at a premium when a Holder purchased Units, any prepayment at par would
result in a loss of capital to the Holder and, in any event, reduce the amount
of income that would otherwise have been paid to Holders.
The tax exemption for certain housing revenue bonds depends on qualification
under Section 143 of the Internal Revenue Code of 1986, as amended (the
"Code"), in the case of single family mortgage revenue bonds or Section
142(a)(7) of the Code or other provisions of Federal law in the case of certain
multi-family housing revenue bonds (including Section 8 assisted bonds). These
sections of the Code or other provisions of Federal law contain certain ongoing
requirements, including requirements relating to the cost and location of the
residences financed with the proceeds of the single family mortgage revenue
bonds and the income levels of tenants of the rental projects financed with the
proceeds of the multi-family housing revenue bonds. While the issuers of the
bonds and other parties, including the originators and servicers of the single-
family mortgages and the owners of the rental projects financed with the multi-
family housing revenue bonds, generally covenant to meet these ongoing
requirements and generally agree to institute procedures designed to ensure
that these requirements are met, there can be no assurance that these ongoing
requirements will be consistently met. The failure to meet these requirements
could cause the interest on the bonds to become taxable, possibly retroactively
to the date of issuance, thereby reducing the value of the bonds, subjecting
the Holders to unanticipated tax liabilities and possibly requiring the Trustee
to sell the bonds at reduced values. Furthermore, any failure to meet these
ongoing requirements might not constitute an event of default under the
applicable mortgage or permit the holder to accelerate payment of the bond or
require the issuer to redeem the bond. In any event, where the mortgage is
insured by the Federal Housing Administration, its consent may be required
before insurance proceeds would become payable to redeem the mortgage bonds.
POWER FACILITY BONDS. The ability of utilities to meet their obligations with
respect to revenue bonds issued on their behalf is dependent on various
factors, including the rates they may charge their customers, the demand for a
utility's services and the cost of providing those services. Utilities, in
particular investor-owned utilities, are subject to extensive regulations
relating to the rates which they may charge customers. Utilities can experience
regulatory, political and consumer resistance to rate increases. Utilities
engaged in long-term capital projects are especially sensitive to regulatory
lags in granting rate increases. Any difficulty in obtaining timely and
adequate rate increases could adversely affect a utility's results of
operations.
The demand for a utility's services is influenced by, among other factors,
competition, weather conditions and economic conditions. Electric utilities,
for example, have experienced increased competition as a result of the
availability of other energy sources, the effects of conservation on the use of
electricity, self-generation by industrial customers and the generation of
electricity by co-generators and other independent power producers. Also,
increased competition will result if federal regulators determine that
utilities must open their transmission lines to competitors. Utilities which
distribute natural gas also are subject to competition from alternative fuels,
including fuel oil, propane and coal.
The utility industry is an increasing cost business making the cost of
generating electricity more expensive and heightening its sensitivity to
regulation. A utility's costs are influenced by the utility's cost of capital,
the availability and cost of fuel and other factors. In addition, natural gas
pipeline and distribution companies have incurred increased costs as a result
of long-term natural gas purchase contracts containing "take or pay" provisions
which require that they pay for natural gas even if natural gas is not taken by
them. There can be no assurance that a utility will be able to pass on these
increased costs to customers through increased rates. Utilities incur
substantial capital expenditures for plant and equipment. In the future they
will also incur increasing capital and operating expenses to comply with
environmental legislation such as the Clean Air Act of 1990, and other energy,
licensing and other laws and regulations relating to, among other things, air
emissions, the quality of drinking water, waste water discharge, solid and
hazardous substance handling and disposal, and siting and licensing of
facilities. Environmental legislation and regulations are changing rapidly and
are the subject of current public policy debate and legislative proposals. It
is increasingly likely that some or many utilities will be subject to more
stringent environmental standards in the future that could result in
significant capital expenditures. Future legislation and regulation could
include, among other things, regulation of so-called electromagnetic fields
associated with electric transmission and distribution lines as well as
emissions of carbon dioxide and other so-called greenhouse gases associated
with the burning of fossil fuels. Compliance with these requirements may limit
a utility's operations or require substantial investments in new equipment and,
as a result, may adversely affect a utility's results of operations.
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The electric utility industry in general is subject to various external
factors including (a) the effects of inflation upon the costs of operation and
construction, (b) substantially increased capital outlays and longer
construction periods for larger and more complex new generating units, (c)
uncertainties in predicting future load requirements, (d) increased financing
requirements coupled with limited availability of capital, (e) exposure to
cancellation and penalty charges on new generating units under construction,
(f) problems of cost and availability of fuel, (g) compliance with rapidly
changing and complex environmental, safety and licensing requirements, (h)
litigation and proposed legislation designed to delay or prevent construction
of generating and other facilities, (i) the uncertain effects of conservation
on the use of electric energy, (j) uncertainties associated with the
development of a national energy policy, (k) regulatory, political and consumer
resistance to rate increases and (l) increased competition as a result of the
availability of other energy sources. These factors may delay the construction
and increase the cost of new facilities, limit the use of, or necessitate
costly modifications to, existing facilities, impair the access of electric
utilities to credit markets, or substantially increase the cost of credit for
electric generating facilities. The Sponsor cannot predict at this time the
ultimate effect of such factors on the ability of any issuers to meet their
obligations with respect to Bonds.
The National Energy Policy Act ("NEPA"), which became law in October, 1992,
made it mandatory for a utility to permit non-utility generators of electricity
access to its transmission system for wholesale customers, thereby increasing
competition for electric utilities. NEPA also mandated demand-side management
policies to be considered by utilities. NEPA prohibits the Federal Energy
Regulatory Commission from mandating electric utilities to engage in retail
wheeling, which is competition among suppliers of electric generation to
provide electricity to retail customers (particularly industrial retail
customers) of a utility. However, under NEPA, a state can mandate retail
wheeling under certain conditions.
There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil fuels.
Congressional support for the increased regulation of air, water, and soil
contaminants is building and there are a number of pending or recently enacted
legislative proposals which may affect the electric utility industry. In
particular, on November 15, 1990, legislation was signed into law which
substantially revised the Clean Air Act (the "1990 Amendments"). The 1990
Amendments sought to improve the ambient air quality throughout the United
States by the year 2000. A main feature of the 1990 Amendments is the reduction
of sulphur dioxide and nitrogen oxide emissions caused by electric utility
power plants, particularly those fueled by coal. Under the 1990 Amendments the
U.S. Environmental Protection Agency ("EPA") was required to develop limits for
nitrogen oxide emissions by 1993. The sulphur dioxide reduction will be
achieved in two phases. Phase I addressed 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 provided for possible further regulation of toxic
air emissions from electric generating units pending the results of several
federal government studies to be conducted over a three to four year period
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.
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WATER AND SEWER REVENUE BONDS. Water and sewer bonds are generally payable
from user fees. The ability of state and local water and sewer authorities to
meet their obligations may be affected by failure of municipalities to utilize
fully the facilities constructed by these authorities, economic or population
decline and resulting decline in revenue from user charges, rising construction
and maintenance costs and delays in construction of facilities, impact of
environmental requirements, failure or inability to raise user charges in
response to increased costs, the difficulty of obtaining or discovering new
supplies of fresh water, the effect of conservation programs and the impact of
"no growth" zoning ordinances. In some cases this ability may be affected by
the continued availability of Federal and state financial assistance and of
municipal bond insurance for future bond issues.
UNIVERSITY AND COLLEGE BONDS. The ability of universities and colleges to
meet their obligations is dependent upon various factors, including the size
and diversity of their sources of revenues, enrollment, reputation, management
expertise, the availability and restrictions on the use of endowments and other
funds, the quality and maintenance costs of campus facilities, and, in the case
of public institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education. The
institution's ability to maintain enrollment levels will depend on such factors
as tuition costs, demographic trends, geographic location, geographic diversity
and quality of the student body, quality of the faculty and the diversity of
program offerings.
Legislative or regulatory action in the future at the Federal, state or local
level may directly or indirectly affect eligibility standards or reduce or
eliminate the availability of funds for certain types of student loans or grant
programs, including student aid, research grants and work-study programs, and
may affect indirect assistance for education.
LEASE RENTAL BONDS. Lease rental bonds are issued for the most part by
governmental authorities that have no taxing power or other means of directly
raising revenues. Rather, the authorities are financing vehicles created solely
for the construction of buildings (administrative offices, convention centers
and prisons, for example) or the purchase of equipment (police cars and
computer systems, for example) that will be used by a state or local government
(the "lessee"). Thus, the bonds are subject to the ability and willingness of
the lessee government to meet its lease rental payments which include debt
service on the bonds. Willingness to pay may be subject to changes in the views
of citizens and government officials as to the essential nature of the finance
project. Lease rental bonds are subject, in almost all cases, to the annual
appropriation risk, i.e., the lessee government is not legally obligated to
budget and appropriate for the rental payments beyond the current fiscal year.
These bonds are also subject to the risk of abatement in many states--rental
bonds cease in the event that damage, destruction or condemnation of the
project prevents its use by the lessee. (In these cases, insurance provisions
and reserve funds designed to alleviate this risk become important credit
factors). In the event of default by the lessee government, there may be
significant legal and/or practical difficulties involved in the reletting or
sale of the project. Some of these issues, particularly those for equipment
purchase, contain the so-called "substitution safeguard", which bars the lessee
government, in the event it defaults on its rental payments, from the purchase
or use of similar equipment for a certain period of time. This safeguard is
designed to insure that the lessee government will appropriate the necessary
funds even though it is not legally obligated to do so, but its legality
remains untested in most, if not all, states.
CAPITAL IMPROVEMENT FACILITY BONDS. The Portfolio of a 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
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procedures. Waste disposal facilities benefit from laws which require waste to
be disposed of in a certain manner but any relaxation of these laws could cause
a decline in demand for the facilities' services. Finally, waste-to-energy
facilities are concerned with many of the same issues facing utilities insofar
as they derive revenues from the sale of energy to local power utilities (see
Power Facility Bonds above).
MORAL OBLIGATION BONDS. The 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 experienced severe financial difficulties. Several
airlines have sought protection from their creditors under Chapter 11 of the
Bankruptcy Code while, other airlines have been liquidated. 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.
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CONVENTION FACILITY BONDS. The Portfolio of a Trust may contain Bonds of
issuers in the convention facilities category. Bonds in the convention
facilities category include special limited obligation securities issued to
finance convention and sports facilities payable from rental payments and
annual governmental appropriations. The governmental agency is not obligated to
make payments in any year in which the monies have not been appropriated to
make such payments. In addition, these facilities are limited use facilities
that may not be used for purposes other than as convention centers or sports
facilities.
PUERTO RICO BONDS. Certain of the Bonds in the Trust may be general
obligations and/or revenue bonds of issuers located in Puerto Rico which will
be affected by general economic conditions in Puerto Rico. The economy of
Puerto Rico is closely integrated with that of the mainland United States.
During fiscal year 1995, approximately 89% of Puerto Rico's exports were to the
United States mainland, which was also the source of 65% of Puerto Rico's
imports. In fiscal 1995, Puerto Rico experienced a $4.6 billion positive
adjusted trade balance. The economy of Puerto Rico is dominated by the
manufacturing and service sectors. The manufacturing sector has experienced a
basic change over the years as a result of increased emphasis on higher wage,
high technology industries such as pharmaceuticals, electronics, computers,
microprocessors, professional and scientific instruments, and certain high
technology machinery and equipment. The service sector, including finance,
insurance and real estate, wholesale and retail trade, and hotel and related
services, also plays a major role in the economy. It ranks second only to
manufacturing in contribution to the gross domestic product and leads all
sectors in providing employment. In recent years, the service sector has
experienced significant growth in response to and paralleling the expansion of
the manufacturing sector. Since fiscal 1985, personal income, both aggregate
and per capita, has increased consistently in each fiscal year. In fiscal 1995,
aggregate personal income was $27.0 billion ($22.5 billion in 1987 prices) and
personal income per capita was $7,296 ($6,074 in 1987 prices). Personal income
includes transfer payments to individuals in Puerto Rico under various social
programs. Total federal payments to Puerto Rico, which include many types in
addition to federal transfer payments, are lower on a per capita basis in
Puerto Rico than in any state. Transfer payments to individuals in fiscal 1995
were $5.9 billion, of which $4.0 billion, or 67.6%, represent entitlement to
individuals who had previously performed services or made contributions under
programs such as Social Security, Veterans Benefits and Medicare. The number of
persons employed in Puerto Rico during fiscal 1995 averaged 1,051,000, an
increase of 4.0% over fiscal 1994. The unemployment, although at a low level
compared to the late 1970s, remains above the average for the United States. At
fiscal year end June 30, 1994, the unemployment rate in Puerto Rico for fiscal
1995 decreased from 16.0% to 13.8%. The Puerto Rico Planning Board's most
recent gross product forecast for fiscal 1996, made in February 1995, showed an
increase of 2.7%. The Planning Board's Economic Activity Index, a composite
index for thirteen economic indicators, increased 2.7% for the first seven
months of fiscal 1995 compared to the same period of fiscal 1994, which period
showed an increase of 1.7% over the same period of fiscal 1993. During the
first four months of fiscal 1996 the Index increased 1.8% compared to the same
period of fiscal 1995, which period showed an increase of 2.7% over the same
period of fiscal 1994. Growth in the Puerto Rico economy in fiscal 1996 depends
on several factors, including the state of the United States economy and the
relative stability in the price of oil imports, the exchange value of the U.S.
dollar, the level of federal transfers and the cost of borrowing.
INSURANCE. Certain Bonds (the "Insured Bonds") may be insured or guaranteed
by AMBAC Indemnity Corporation ("AMBAC"), Asset Guaranty Reinsurance Company
("Asset Guaranty"), Capital Guaranty Insurance Company ("CGIC"), Capital
Markets Assurance Corp. ("CAPMAC"), Connie Lee Insurance Company ("Connie
Lee"), Financial Guaranty Insurance Company "Financial Guaranty"), Financial
Security Assurance Inc. ("FSA"), or MBIA Insurance Corporation ("MBIA")
(collectively, the "Insurance Companies"). The claims-paying ability of each of
these companies, unless otherwise indicated, is rated AAA by Standard & Poor's
or another acceptable national rating service. The ratings are subject to
change at any time at the discretion of the rating agencies. In determining
whether to insure bonds, the Insurance Companies severally apply their own
standards. The cost of this insurance is borne either by the issuers or
previous owners of the bonds or by the Sponsor. The insurance policies are non-
cancellable and will continue in force so long as the Insured Bonds are
outstanding and the insurers remain in business. The insurance policies
guarantee the timely payment of principal and interest on but do not guarantee
the market value of the Insured Bonds or the value of the Units. The insurance
policies generally do not provide for accelerated payments of principal or,
except in the case of any portfolio insurance policies, cover redemptions
resulting from events of taxability. If the issuer of any Insured Bond should
fail to make an interest or principal payment, the insurance policies generally
provide that the Trustee or its agent shall give notice of nonpayment to the
Insurance Company or its agent and provide evidence of the Trustee's right to
receive payment. The Insurance Company is then required to disburse the amount
of the failed payment to the Trustee or its agent and is thereafter subrogated
to the Trustee's right to receive payment from the issuer.
The following are brief descriptions of certain of the insurance companies
that may insure or guarantee certain Bonds. The financial information presented
for each company has been determined on a statutory basis and is unaudited.
AMBAC is a Wisconsin-domiciled stock insurance corporation, regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin, and licensed
to do business in 50 states, the District of Columbia and the Commonwealth of
Puerto Rico, with admitted assets of approximately $2,505,000,000 (unaudited)
and statutory capital of approximately $1,384,000,000 (unaudited) as of June
30, 1996. Statutory capital consists of AMBAC's policyholders' surplus and
statutory contingency reserve. AMBAC is a wholly owned subsidiary of AMBAC
Inc., a 100% publicly-held company. Moody's, Standard & Poor's and Fitch have
each assigned a triple-A claims-paying ability rating to AMBAC.
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AMBAC has obtained a ruling from the Internal Revenue Service to the effect
that the insuring of an obligation by AMBAC will not affect the treatment for
federal income tax purposes of interest on such obligation and that insurance
proceeds representing maturing interest paid by AMBAC under policy provisions
substantially identical to those contained in its municipal bond insurance
policy shall be treated for federal income tax purposes in the same manner as
if such payments were made by the issuer of the Bonds.
Asset Guaranty is a New York State insurance company licensed to write
financial guarantee, credit, residual value and surety insurance. Asset
Guaranty commenced operations in mid-1988 by providing reinsurance to several
major monoline insurers. Asset Guaranty also issued limited amounts of primary
financial guaranty insurance, but not in direct competition with the primary
mono-line companies for which it acts as a reinsurer. The parent holding
company of Asset Guaranty, Asset Guarantee Inc. (AGI), merged with Enhance
Financial Services (EFS) in June, 1990 to form Enhance Financial Services Group
Inc. (EFSG). The two main, 100%-owned subsidiaries of EFSG, Asset Guaranty and
Enhance Reinsurance Company (ERC), share common management and physical
resources. As of April 30, 1996 EFSG is 55.3% owned by the public, 30.2% by
U.S. WEST Inc., 8.9% by senior management and 5.6% by Swiss Reinsurance
Company. 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
Standard & Poor's and Moody's. Asset Guaranty received a "AA" claims-paying-
ability rating from Standard & Poor's during August 1993, but remains unrated
by Moody's. As of March 31, 1996 Asset Guaranty had admitted assets of
approximately $187,000,000 and policyholders' surplus of approximately
$82,000,000.
CAPMAC commenced operations in December, 1987 as the second 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 March 31, 1995 CAPMAC's admitted assets were
approximately $210,000,000 and its policyholders' surplus was approximately
$138,000,000.
FSA is a monoline insurance company incorporated in 1984 under the laws of
the State of New York and is licensed to engage in the financial guaranty
insurance business in all 50 states, the District of Columbia and Puerto Rico.
FSA is a wholly owned subsidiary of Financial Security Assurance Holdings
Ltd. ("Holdings"), a New York Stock Exchange listed company. Major shareholders
of Holdings include Fund American Enterprises Holdings, Inc., US WEST Capital
Corporation and Tokio Marine and Fire Insurance Co., Ltd. No shareholder of
Holdings is obligated to pay any debt of FSA or any claim under any insurance
policy issued by FSA or to make any additional contribution to the capital of
FSA.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties, by FSA or any of its
domestic operating insurance company subsidiaries are reinsured among such
companies on an agreed upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, FSA reinsures a portion of its liabilities under
certain of its financial guaranty insurance policies with other reinsurers
under various quota-share treaties and on a transaction-by-transaction basis.
Such reinsurance is utilized by FSA as a risk management device and to comply
with certain statutory and rating agency requirements; it does not alter or
limit FSA's obligations under any financial guaranty insurance policy. As of
June 30, 1996, total shareholders equity of FSA and its wholly-owned
subsidiaries was (unaudited) $785,072,000 and total unearned premium reserves
was (unaudited) $351,180,000.
Connie Lee, a stock insurance company incorporated in Wisconsin, is a wholly-
owned subsidiary of College Construction Loan Insurance Association, a
stockholder-owned District of Columbia insurance holding company whose creation
was authorized by the 1986 amendments to the Higher Education Act. The United
States Department of Education and Student Loan Marketing Association are
founding shareholders of College Construction Loan Insurance Association. As a
federally authorized company, Connie Lee's structure and operational
authorities are subject to revisions by amendments to the Higher Education Act
or other federal enactments. CONNIE LEE IS NOT AN AGENCY OR INSTRUMENTALITY OF
THE UNITED STATES GOVERNMENT, ALTHOUGH THE UNITED STATES GOVERNMENT IS A
STOCKHOLDER OF COLLEGE CONSTRUCTION LOAN INSURANCE ASSOCIATION. THE OBLIGATIONS
OF CONNIE LEE ARE NOT OBLIGATIONS OF THE UNITED STATES GOVERNMENT. As of June
30, 1996, its total admitted assets were approximately $219,098,333 (unaudited)
and total policyholders' surplus was approximately $112,734,947 (unaudited), as
reported to the Commissioner of Insurance of the State of Wisconsin.
Financial Guaranty, a New York stock insurance company, is a wholly-owned
subsidiary of FGIC Corporation ("FGIC") which is wholly-owned by General
Electric Capital Corporation ("GECC"). Neither FGIC nor GECC 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
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variety of investment instruments in January 1984 and is currently authorized
to provide insurance in 50 states and the District of Columbia. It files
reports with state regulatory agencies and is subject to audit and review by
those authorities. As of June 30, 1996, its total admitted assets were
approximately $2,377,900,000 and its policyholders' surplus was approximately
$1,069,597.
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. MBIA is domiciled in the State
of New York and licensed to do business in, and subject to regulation under,
the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of
the United States and the Territory of Guam. As of June 30, 1996, MBIA had
admitted assets of approximately $4,200,000,000 (unaudited), total liabilities
of approximately $2,800,000,000 (unaudited), and policyholders' surplus of
approximately $1,400,000,000 (unaudited), prepared in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1995, MBIA had admitted assets of approximately
$3,800,000,000 (audited), total liabilities of approximately $2,500,000,000
(audited) and policyholders' surplus of approximately $1,300,000,000 (audited).
Insurance companies are subject to regulation and supervision in the
jurisdictions in which they do business under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. This regulation, supervision and administration relate, among
other things, to: the standards of solvency which must be met and maintained;
the licensing of insurers and their agents; the nature of and limitations on
investments; deposits of securities for the benefit of policyholders; approval
of policy forms and premium rates; periodic examinations of the affairs of
insurance companies; annual and other reports required to be filed on the
financial condition of insurers or for other purposes; and requirements
regarding reserves for unearned premiums, losses and other matters. Regulatory
agencies require that premium rates not be excessive, inadequate or unfairly
discriminatory. Insurance regulation in many states also includes "assigned
risk" plans, reinsurance facilities, and joint underwriting associations, under
which all insurers writing particular lines of insurance within the
jurisdiction must accept, for one or more of those lines, risks unable to
secure coverage in voluntary markets. A significant portion of the assets of
insurance companies is required by law to be held in reserve against potential
claims on policies and is not available to general creditors.
Although the Federal government does not regulate the business of insurance,
Federal initiatives can significantly impact the insurance business. Current
and proposed Federal measures which may significantly affect the insurance
business include pension regulation (ERISA), controls on medical care costs,
minimum standards for no-fault automobile insurance, national health insurance,
personal privacy protection, tax law changes affecting life insurance companies
or the relative desirability of various personal investment vehicles and repeal
of the current antitrust exemption for the insurance business. (If this
exemption is eliminated, it will substantially affect the way premium rates are
set by all property-liability insurers.) In addition, the Federal government
operates in some cases as a co-insurer with the private sector insurance
companies.
Insurance companies are also affected by a variety of state and Federal
regulatory measures and judicial decisions that define and extend the risks and
benefits for which insurance is sought and provided. These include judicial
redefinitions of risk exposure in areas such as products liability and state
and Federal extension and protection of employee benefits, including pension,
workers' compensation, and disability benefits. These developments may result
in short-term adverse effects on the profitability of various lines of
insurance. Longer-term adverse effects can often be minimized through prompt
repricing of coverages and revision of policy terms. In some instances, these
developments may create new opportunities for business growth. All insurance
companies write policies and set premiums based on actuarial assumptions about
mortality, injury, the occurrence of accidents and other insured events. These
assumptions, while well supported by past experience, necessarily do not take
account of future events. The occurrence in the future of unforeseen
circumstances could affect the financial condition of one or more insurance
companies. The insurance business is highly competitive and with the
deregulation of financial service businesses, it should become more
competitive. In addition, insurance companies may expand into non-traditional
lines of business which may involve different types of risks.
The above financial information relating to the Insurance Companies has been
obtained from publicly available information. No representation is made as to
the accuracy or adequacy of the information or as to the absence of material
adverse changes since the information was made available to the public.
LITIGATION AND LEGISLATION. To the best knowledge of the Sponsor, there is no
litigation pending as of the Initial Date in respect of any Bonds which might
reasonably be expected to have a material adverse effect upon the 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.
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<PAGE>
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 is expanding its examination program
with respect to tax-exempt bonds. The expanded examination program will consist
of, among other measures, increased enforcement against abusive transactions,
broader audit coverage (including the expected issuance of audit guidelines)
and expanded compliance achieved by means of expected revisions to the tax-
exempt bond information return forms. At this time, it is uncertain whether the
tax exempt status of any of the Bonds would be affected by such proceedings, or
whether such effect, if any, would be retroactive.
In certain cases, a Bond may provide that if the interest on the Bond should
ultimately be determined to be taxable, the Bond would become due and payable
by its issuer, and, in addition, may provide that any related letter of credit
or other security could be called upon if the issuer failed to satisfy all or
part of its obligation. In other cases, however, a Bond may not provide for the
acceleration or redemption of the Bond or a call upon the related letter of
credit or other security upon a determination of taxability. In those cases in
which a Bond does not provide for acceleration or redemption or in which both
the issuer and the bank or other entity issuing the letter of credit or other
security are unable to meet their obligations to pay the amounts due on the
Bond as a result of a determination of taxability, the Trustee would be
obligated to sell the Bond and, since it would be sold as a taxable security,
it is expected that it would have to be sold at a substantial discount from
current market price. In addition, as mentioned above, under certain
circumstances Holders could be required to pay income tax on interest received
prior to the date on which the interest is determined to be taxable.
THE UNITS
On the Date of 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 Battle Fowler LLP, 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
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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 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 foregoing discussion relates only to Federal and certain aspects of
New York State and City income taxes. Depending on their state of
residence, Holders may be subject to state and local taxation and should
consult their own tax advisers in this regard.
Interest on certain tax-exempt bonds issued after August 7, 1986 will be a
preference item for purposes of the alternative minimum tax ("AMT"). The
Sponsor 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
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interest not subject to the AMT may give rise to an alternative minimum tax
liability (or increase an existing liability) because the interest income will
be included in the corporation's "adjusted current earnings" for purposes of
the adjustment to alternative minimum taxable income required by Section 56(g)
of the Code and will be taken into account for purposes of the environmental
tax on corporations under Section 59A of the Code, which is based on an
alternative minimum taxable income.
In addition, interest on the Bonds must be taken into consideration in
computing the portion, if any, of social security benefits that will be
included in an individual's gross income and subject to Federal income tax.
Holders are urged to consult their own tax advisers concerning an investment in
Units.
At the time of issuance of each Bond, an opinion relating to the validity of
the Bond and to the exemption of interest thereon from regular Federal income
taxes was or will be rendered by bond counsel. Neither the Sponsor nor Battle
Fowler LLP have made or will make any review of the proceedings relating to the
issuance of the Bonds or the basis for these opinions. The tax exemption is
dependent upon the issuer's (and other users') compliance with certain ongoing
requirements, and the opinion of bond counsel assumes that these requirements
will be complied with. However, there can be no assurance that the issuer (and
other users) will comply with these requirements, in which event the interest
on the Bond could be determined to be taxable retroactively to the date of
issuance.
In the case of certain of the Bonds, the opinions of bond counsel indicate
that interest on such Bonds received by a "substantial user" of the facilities
being financed with the proceeds of such Bonds, or persons related thereto, for
periods while such Bonds are held by such a user or related person, will not be
exempt from regular Federal income taxes, although interest on such Bonds
received by others would be exempt from regular Federal income taxes.
"Substantial user" is defined under U.S. Treasury Regulations to include only a
person whose gross revenue derived with respect to the facilities financed by
the issuance of bonds is more than 5% of the total revenue derived by all users
of such facilities, or who occupies more than 5% of the usable area of such
facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" are defined to
include certain related natural persons, affiliated corporations, partners and
partnerships. Similar rules may be applicable for state tax purposes.
After the end of each calendar year, the Trustee will furnish to each Holder
an annual statement containing information relating to the interest received by
the 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 or some portion of the expenses incurred in establishing each Trust,
including the cost of the initial preparation of documents relating to a Trust,
Federal and State registration fees, the initial fees and expenses of the
Trustee, legal expenses and any other out-of-pocket expenses will be paid by
the Trust, and amortized over five years. Any balance of the expenses incurred
in establishing a Trust, as well as advertising and selling expenses and other
out-of-pocket expenses will be paid at no cost to the Trusts.
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.
There are no management fees and the Sponsor earns only a nominal Portfolio
Supervision fee (the "Supervision Fee"), which is earned for Portfolio
supervisory services. This fee 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."
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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.
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>
PERCENT OF PERCENT OF
PUBLIC NET AMOUNT DEALER
UNITS PURCHASED+ OFFERING PRICE INVESTED CONCESSION
- ---------------- -------------- ---------- ----------
<S> <C> <C> <C>
1- 99.................................. 4.70% 4.932% $33.00
100-249.................................. 4.25% 4.439% $32.00
250-499.................................. 4.00% 4.167% $30.00
500-999.................................. 3.50% 3.627% $25.00
1,000 or more.............................. 3.00% 3.093% $20.00
</TABLE>
The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.
Pursuant to employee benefit plans, Units of a Trust are available to
employees of the Sponsor and its subsidiaries, affiliates and employee-related
discounts, 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. Participants in the Smith Barney Asset One SM Program may purchase
Units of the Trust at a Public Offering Price equal to the Evaluator's
determination of the aggregate offering price of the Bonds of a Trust per Unit
during the initial offering period and after the initial offering period at a
Public Offering Price equal to the Evaluator's determination of the aggregate
bid price of the Bonds of a Trust per Unit. Participants in the Smith Barney
Asset One SM Program are subject to certain fees for specified securities
brokerage and execution services.
METHOD OF EVALUATION
During the initial public offering period, the aggregate offering price of
the Bonds is determined by the Evaluator (1) on the basis of current offering
prices for the Bonds*, (2) if offering prices are not available for any Bonds,
on the basis of current offering prices for
- -------
+ 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.
* Current offering or bid prices of the Deposited Units, if any, are based on
prevailing weekly evaluations of the obligations underlying such Deposited
Units.
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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 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.
- -------
* Current offering or bid prices of the Deposited Units, if any, are based on
prevailing weekly evaluations of the obligations underlying such Deposited
Units.
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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.
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").
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<PAGE>
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 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 Unit
holders' pro rata share of the cash balance in the Principal Account computed
as of the close of business on the preceding Record Date. Persons who purchase
Units between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date following their purchase of Units.
No distribution need be made from the Principal Account if the balance therein
is less than an amount sufficient to distribute $5.00 per Unit. The Monthly
Income Distribution per Unit initially will be in the amount shown under 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 The
Chase Manhattan Bank (National Association) 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,
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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 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 through the date of settlement of the
investor's purchase (normally three business days after purchase), less any
distributions from the Interest Account. The Trustee will recover its
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.
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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 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., 388 Greenwich Street, New York, New York 10013 ("Smith
Barney"), was incorporated in Delaware in 1960 and traces its history through
predecessor partnerships to 1873. Smith Barney, an investment banking and
securities broker-dealer firm, is a member of the New York Stock Exchange, Inc.
and other major securities and commodities exchanges, the National Association
of Securities Dealers, Inc. and the Securities Industry Association. Smith
Barney is an indirect wholly-owned subsidiary of The Travelers Inc.
Smith Barney or an affiliate is investment adviser, principal underwriter or
distributor of 60 open-end investment companies and investment manager of 12
closed-end investment companies. Smith Barney also sponsors all Series of
Corporate Securities Trust, Government Securities Trust, 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
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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.
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
Although the Trusts are not actively managed as mutual funds are, the
portfolios are reviewed periodically on a regular cycle. The Sponsor is
empowered to direct the Trustee to dispose of Bonds when certain events occur
that adversely affect the value of the Bonds, 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 supervisory services for each Trust
in order to determine whether the Trustee should be directed to dispose of any
such Bonds.
It is the responsibility of the Sponsor to instruct the Trustee to reject any
offer made by an issuer of any of the Bonds to issue new obligations in
exchange and substitution for any Bonds pursuant to a refunding or refinancing
plan, 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 The Chase Manhattan Bank with its principal executive office
located at 270 Park Avenue, New York, New York 10017 and its unit investment
trust office at 4 New York Plaza, New York, New York 10004. The Trustee is
subject to supervision by the Superintendent of Banks of the State of New York,
the Federal Deposit Insurance 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
B-21
<PAGE>
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."
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 business unit of J.J. Kenny
Company, Inc., a subsidiary of The McGraw-Hill Companies, Inc., with main
offices located at 65 Broadway, New York, New York 10006.
LIMITATIONS ON LIABILITY
The Trustee, Sponsor and 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.
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.
B-22
<PAGE>
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 Battle Fowler LLP, 75 East
55th Street, New York, New York 10022, as special counsel for the Sponsor.
AUDITORS
The statements of financial condition and 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
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
- -------
+As described by the rating agencies.
B-23
<PAGE>
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.
A--These bonds are considered to be investment grade and of good quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--These bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however are more likely to weaken this ability than bonds with
higher ratings.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
DUFF & PHELPS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
B-24
<PAGE>
FEDERAL TAX FREE VS. TAXABLE INCOME
This table shows the approximate yields which taxable securities must earn in
various income brackets to produce, after Federal income tax, returns
equivalent to specified tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the entire
amount of any increase or decrease in his taxable income resulting from a
switch from taxable to tax-exempt securities or vice versa. The table reflects
projected Federal income tax rates and the tax brackets for the 1997 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.
1997 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%
TAXABLE EQUIVALENT YIELD
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
41,200 $ 0- 24,650 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 41,201-
99,600 $ 24,651- 59,750 28.00% 5.56 6.25 6.94 7.64 8.33 9.03
$ 99,601-
121,200 $ 59,751-121,200 31.00% 5.80 6.52 7.25 7.97 8.70 9.42
$121,201-
151,750 $121,201-124,650 31.93% 5.88 6.61 7.35 8.08 8.81 9.55
$151,751-
271,050 $124,651-271,050 37.08% 6.36 7.15 7.95 8.74 9.54 10.33
OVER
$271,050 OVER $271,050 40.79% 6.76 7.60 8.44 9.29 10.13 10.98
- -----------------------------------------------------------------------------------------
</TABLE>
Note: This table reflects the following:
1 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions.
However, certain itemized deductions are reduced by the lesser of (i)
three percent of the amount of the taxpayer's AGI over $121,200, or (ii)
80 percent of the amount of such itemized deductions otherwise allowable.
The effect of the three percent phase out on all itemized deductions and
not just those deductions subject to the phase out is reflected above in
the combined Federal and state tax rates through the use of higher
effective Federal tax rates. In addition, the effect of the 80 percent
cap on overall itemized deductions is not reflected on this table.
Federal income tax rules also provide that personal exemptions are phased
out at a rate of two percent for each $2,500 (or fraction thereof) of AGI
in excess of $181,800 for married taxpayers filing a joint tax return and
$121,200 for single taxpayers. The effect of the phase out of personal
exemptions is not reflected in the above table.
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest marginal tax rates applicable to the income levels
indicated within each bracket.
4 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.
PERFORMANCE INFORMATION
Sales material may compare tax-equivalent yields of long-term municipal bonds
to long-term U.S. Treasury bonds and to the Bond Buyer Revenue Bond Index. Such
information is based on past performance and is not indicative of future
results. Yields on taxable investment are generally higher than those of tax-
exempt securities of comparable maturity. While income from municipal bonds is
exempt from federal income taxes, income from Treasuries is exempt from state
and local taxes. Since Treasuries are considered to have the highest possible
credit quality, the difference in yields is somewhat narrower than if compared
to corporate bonds with similar ratings and maturities.
B-25
<PAGE>
PROSPECTUS--PART C:
- --------------------------------------------------------------------------------
NOTE: PART C OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY
PARTS A AND B.
- --------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST--THE STATE TRUSTS
Potential purchasers of the Units of a State Trust should consider the fact
that the Trust's Portfolio consists primarily of Bonds issued by the state for
which such State Trust is named or its municipalities or authorities and
realize the substantial risks associated with an investment in such Bonds. Each
State Trust is subject to certain additional risk factors. The Sponsor believes
the discussions of risk factors summarized below describe some of the more
significant aspects of the State Trusts. The sources of such information are
the official statements of issuers as well as other publicly available
documents. While the Sponsor has not independently verified this information,
it has no reason to believe that such information is not correct in all
material respects. Investment in a State Trust should be made with an
understanding that the value of the underlying Portfolio may decline with
increases in interest rates.
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
services 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 services 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 proceeds 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 would 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.
C-1
<PAGE>
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 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 year 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, monitor 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. On November 9, 1994, the Maryland Transportation Authority issued
$162.6 million of special obligation revenue bonds to fund projects at the
Baltimore/Washington International Airport secured by revenues from the
passenger facility charges received by the Maryland Aviation Administration and
from the general account balance of the Transportation Authority. As of March
31, 1996, $397.6 million of the Transportation Authority's revenue bonds were
outstanding.
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.
Currently, the Stadium Authority operates Oriole Park at Camden Yards which
opened in 1992. The Authority's financings 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.
In October 1995, the Stadium Authority and the Baltimore Ravens (formally
known as the Cleveland Browns) executed a Memorandum of Agreement which commits
the Ravens to occupy a to be constructed football stadium in Baltimore City.
The Agreement was approved by the Board of Public Works and constitutes a
"long-term lease with a National Football League team" as required by statute
for the issuance of Stadium Authority bonds. The Stadium Authority sold $87.565
million in lease-backed revenue bonds on May 1, 1996. The proceeds form the
bonds, along with cash available from State lottery proceeds, investment
earnings, and other sources will be used to pay project design and construction
expenses of approximately $200 million. The bonds are solely secured by an
assignment of revenues received under a lease of the project from the Stadium
Authority to the State.
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.
C-2
<PAGE>
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 borrowings. However, the State has issued
certain obligations in the nature of bond anticipation notes for the purpose of
assisting several 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.
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 requirements that it not exceed a stated percentage of
the assessable base upon which 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, payment 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. 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 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.
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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.
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.
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MARYLAND TAXES --
In the opinion of Messrs. Weinberg & Green LLC, special Maryland counsel of
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 measure 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. Subject to a
three year phase in period, interest on Bonds is not 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. Gains 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. Subject to a three year phase in
period, profits realized on the sale or exchange of Bonds are not 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 JERSEY TRUST
RISK FACTORS--Prospective investors should consider the recent financial
difficulties and pressures which the State of New Jersey (the "State") and
certain of its public authorities have undergone.
The State's 1996 Fiscal Year budget became law on June 30, 1995.
Effective January 1, 1994, New Jersey personal income tax rates were cut by
5% for all taxpayers. Effective January 1, 1995, the personal income tax rates
were cut by an additional 10% for most taxpayers. By a bill signed into law on
July 4, 1995, New Jersey personal income tax rates have been further reduced so
that coupled with the prior rate reductions, beginning with tax year 1996,
personal income tax rates will be, depending on a taxpayer's level of income
and filing status, 30%, 15% or 9% lower than 1993 rates. At this time, the
effect of the tax reductions cannot be evaluated.
Reflecting the downturn, the rate of unemployment in the State rose from a
low of 3.6 percent during the first quarter of 1989 to a recessionary peak of
8.4% during 1992(4). Since then, the unemployment rate fell to 6.9% during the
first quarter of 1995.
In the first nine months of 1994, relative to the same period a year ago, job
growth took place in services (3.5%) and construction (5.7%), more moderate
growth took place in trade (1.9%), transportation and utilities (1.2%) and
finance/insurance/real estate (1.4%), while manufacturing and government
declined (by 1.5% and 0.1%, respectively). The net result was a 1.6% increase
in average employment during the first nine months of 1994 compared to the
first nine months of 1993.
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The insured unemployment rate, i.e. the number of individuals claiming
benefits as a percentage of the number of workers covered by Unemployment
Insurance, stopped rising in the winter of 1991 and had been stable at about
4.0 percent through June of 1992 before beginning a gradual decline to its
December, 1994 level of 3.0 percent. It has since stabilized at about that
level. After paying out approximately $125 million, the State's Emergency
Unemployment Benefits Program ended on November 17, 1991 with the enactment of
the Federal Emergency Unemployment Compensation (EUC) Program. Through the
expiration of the EUC program on April 30, 1994, over $2.1 billion has been
disbursed to claimants who exhausted their entitlement under the regular state
program. Benefits under EUC are financed 100 percent by the federal government
and thus do not impact the State's trust fund.
Economic recovery is likely to be slow and uneven in New Jersey. Some
sectors, like commercial and industrial construction, will undoubtedly lag
because of continued excess capacity. Also, employers in rebounding sectors can
be expected to remain cautious about hiring until they become convinced that
improved business will be sustained. Other firms will continue to merge or
downsize to increase profitability. As a result, job gains will probably come
grudgingly and unemployment will recede at a correspondingly slow pace.
Pursuant to the State Constitution, no money may be drawn from the State
Treasury except for appropriations made by law. In addition, all monies for the
support of State purposes must be provided for in one general appropriation law
covering one and the same fiscal year.
In addition to the Constitutional provisions, the New Jersey statutes contain
provisions concerning the budget and appropriation system. Under these
provisions, each unit of the State requests an appropriation from the Director
of the Division of Budget and Accounting, who reviews the budget requests and
forwards them with his recommendations to the Governor. The Governor then
transmits his recommended expenditures and sources of anticipated revenue to
the legislature, which reviews the Governor's Budget Message and submits an
appropriations bill to the Governor for his signature by July 1 of each year.
At the time of signing the bill, the Governor may revise appropriations or
anticipated revenues. That action can be reversed by a two-thirds vote of each
House. No supplemental appropriation may be enacted after adoption of the act,
except where there are sufficient revenues on hand or anticipated, as certified
by the Governor, to meet the appropriation. Finally, the Governor may, during
the course of the year, prevent the expenditure of various appropriations when
revenues are below those anticipated or when he determines that such
expenditure is not in the best interest of the State.
One of the major reasons for cautious optimism is found in the construction
industry. Total construction contracts awarded in New Jersey have turned
around, rising by 11.8% for the first two months of 1995 compared with 1994. By
far, the largest boost came from residential construction awards which
increased by 32.8% in 1995 compared with 1994. In addition, non-residential
building construction awards have turned around, posting a 2.3% gain from 1994.
Non-building construction awards increased approximately 12% in the first two
months of 1995 compared with the same period in 1994.
In addition to increases in construction contract awards, another reason for
cautious optimism is rising new light truck registrations. New passenger car
registrations issued during 1994 were virtually unchanged in New Jersey from a
year earlier. However, registrations of new light trucks and vans (up to 10,000
lbs.) advanced strongly in 1994 increasing 19% during 1994. Retail sales for
1994 were up 7.5% compared to 1993. Retailers, such as those selling appliances
and home furnishings, should benefit from increased residential construction.
Car, light truck and van dealers should also benefit from the high (eight
years) average age of autos on the road.
Looking further ahead, prospects for New Jersey are favorable, although a
return to the pace of the 1980s is highly unlikely. Although growth is likely
to be slower than in the nation, the locational advantages that have served New
Jersey well for many years will still be there. Structural changes that have
been going on for years can be expected to continue, with job creation
concentrated most heavily in the service sectors.
State Aid to Local Governments was the largest portion of Fiscal Year 1996
appropriations. In fiscal year 1996, $6,423.5 million of the State's
appropriations consisted of funds which are distributed to municipalities,
counties and school districts. The largest State Aid appropriation, in the
amount of $4,750.8 million, is provided for local elementary and secondary
education programs. Of this amount $2,713.1 million is provided as foundation
aid to school districts by formula based upon the number of students and the
ability of a school district to raise taxes from its own base. In addition, the
State provided $601.0 million for special education programs for children with
disabilities. A $292.9 million program is also funded for pupils at risk of
educational failure, including basic skills improvement. The State appropriated
$612.9 million on behalf of school districts as the employer share of the
teachers' pension and benefits programs, $249.4 million to pay for the cost of
pupil transportation and $38.2 million for transition aid, which guaranteed
school districts a 6.5% increase over the aid received in Fiscal Year 1991 and
is being phased out over six years.
Appropriations to the State Department of Community Affairs ("DCA") total
$837.9 million in State Aid monies for Fiscal Year 1996. Many of the DCA State
Aid programs and many Treasury State Aid programs are consolidated into a
single appropriation, Consolidated Municipal Property Tax Relief Act in the
amount of $857.6 million. In addition there is $16.7 million for housing
programs, $33.0 million for a block grant programs, $30 million for
discretionary aid and $3.6 million in other aid. These appropriations are
offset
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by $103.0 million in pension funding savings, resulting in a net appropriation
for DCA State Aid of $837.9 million. Appropriations to the State Department of
the Treasury total $85.1 million in State Aid monies for Fiscal Year 1996. The
principal programs funded by these appropriations; the cost of senior citizens,
disabled and veterans property tax deductions and exemptions ($57.9 million);
aid to densely populated municipalities ($17.0 million).
Other appropriations of State Aid in Fiscal 1996 include welfare programs
($467.6 million); aid to county colleges ($128.0 million); and aid to county
mental hospitals ($88.8 million).
The second largest portion of appropriations in fiscal 1996 is applied to
Direct State Services: the operation of State government's 17 departments, the
Executive Office, several commissions, the State Legislature and the Judiciary.
In Fiscal Year 1996, appropriations for Direct State Services aggregate
$5,179.6 million. Some of the major appropriations for Direct State Services
during Fiscal Year 1996 are detailed below.
$606.6 million is appropriated for programs administered by the State
Department of Human Services. The State Department of Labor is appropriated
$57.9 million for the administration of programs for workers' compensation,
unemployment and disability insurance, manpower development, and health safety
inspection.
The State Department of Health is appropriated $33.3 million for the
prevention and treatment of diseases, alcohol and drug abuse programs,
regulation of health care facilities, and the uncompensated care program.
$76.1 million is appropriated to the State Department of Higher Education for
the support of nine State colleges, Rutgers University, the New Jersey
Institute of Technology, and the University of Medicine and Dentistry of New
Jersey.
$869.9 million is appropriated to the State Department of Law and Public
Safety and the Department of Corrections.
$184.3 million is appropriated to the State Department of Transportation for
the various programs it administers, such as the maintenance and improvement of
the State highway system and subsidies for railroads and bus companies.
$182.2 million is appropriated to the State Department of Environmental
Protection for the protection of air, land, water, forest, wildlife, and
shellfish resources and for the provision of outdoor recreational facilities.
The primary method for State financing of capital projects is through the
sale of the general obligation bonds of the State. These bonds are backed by
the full faith and credit of the State. State tax revenues and certain other
fees are pledged to meet the principal and interest payments and if provided,
redemption premium payments required to pay the debt fully. No general
obligation debt can be issued by the State without prior voter approval, except
that no voter approval is required for any law authorizing the creation of a
debt for the purpose of refinancing all or a portion of outstanding debt of the
State, so long as such law requires that the refinancing provide a debt service
savings.
NEW JERSEY TAXES--
In the opinion of Messrs. Shanley & Fisher, P.C., special New Jersey counsel
on New Jersey tax matters, under existing law:
The proposed activities of the New Jersey Trust will not cause it to be
subject to the New Jersey Corporation Business Tax Act.
The income of the New Jersey Trust will be treated as the income of
individuals, estates and trusts who are the Holders of Units of the New
Jersey Trust for purposes of the New Jersey Gross Income Tax Act, and
interest which is exempt from tax under the New Jersey Gross Income Tax Act
when received by the New Jersey Trust will retain its status as tax-exempt
in the hands of such Unit Holders. Gains arising from the sale or
redemption by a Holder of his Units or from the sale, exchange, redemption,
or payment at maturity of a Bond by the New Jersey Trust are exempt from
taxation under the New Jersey Gross Income Tax Act (P.L. 1976 c. 47), as
enacted and construed on the date hereof, to the extent such gains are
attributable to Bonds, the interest on which is exempt from tax under the
New Jersey Gross Income Tax Act. Any loss realized on such disposition may
not be utilized to offset gains realized by such Unit Holder on the
disposition of assets the gain on which is subject to the New Jersey Gross
Income Tax Act.
Units of the New Jersey Trust may be subject, in the estates of New
Jersey residents, to taxation under the Transfer Inheritance Tax Law of the
State of New Jersey.
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NEW YORK TRUST
RISK FACTORS--The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
connection with the issuance of New York State and New York City municipal
bonds. The Sponsor has not independently verified this information.
ECONOMIC TRENDS. Over the long term, the State of New York (the "State") and
the City of New York (the "City") face serious economic problems. The City
accounts for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways. The State
historically has been one of the wealthiest states in the nation. For decades,
however, the State has grown more slowly than the nation as a whole, gradually
eroding its relative economic affluence. Statewide, urban centers have
experienced significant changes involving migration of the more affluent to the
suburbs and an influx of generally less affluent residents. Regionally, the
older Northeast cities have suffered because of the relative success that the
South and the West have had in attracting people and business. The City has
also had to face greater competition as other major cities have developed
financial and business capabilities which make them less dependent on the
specialized services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and
colleges, public health systems, other social services and recreational
facilities. Despite these benefits, the burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its localities
may take to encourage economic growth and achieve balanced budgets, reductions
in Federal spending could materially and adversely affect the financial
condition and budget projections of the State and its localities.
NEW YORK CITY. The City, with a population of approximately 7.3 million, is
an international center of business and culture. Its non-manufacturing economy
is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total employment
earnings. Additionally, the City is the nation's leading tourist destination.
The City's manufacturing activity is conducted primarily in apparel and
printing.
The national economic downturn which began in July 1990 adversely affected
the local economy, which had been declining since late 1989. As a result, the
City experienced job losses in 1990 and 1991 and real Gross City Product
("GCP") fell in those two years. Beginning in calendar year 1992, the
improvement in the national economy helped stabilize conditions in the City.
Employment losses moderated toward year-end and real GCP increased, boosted by
strong wage gains. After noticeable improvements in the City's economy during
calendar year 1994, economic growth slowed in calendar year 1995, and the
City's current four-year financial plan assumes that moderate economic growth
will continue through calendar year 2000.
For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
recent years in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain a balanced budget as required
by State law without additional tax or other revenue increases or reductions in
City services, which could adversely affect the City's economic base.
Pursuant to the New York State Financial Emergency Act for the City of New
York, the City prepares an annual four-year financial plan, which is reviewed
and revised on a quarterly basis and which includes the City's capital, revenue
and expense projections and outlines proposed gap-closing programs for years
with projected budget gaps. The City's current four-year financial plan
projects substantial budget gaps for each of the 1998 through 2000 fiscal
years, before implementation of the proposed gap-closing program contained in
the current financial plan. The City is required to submit its financial plans
to review bodies, including the New York State Financial Control Board
("Control Board").
The City depends on State aid both to enable the City to balance its budget
and to meet its cash requirements. The State's 1995-1996 Financial Plan
projects a balanced General Fund. There can be no assurance that there will not
be reductions in State aid to the City from amounts currently projected or that
State budgets in future fiscal years will be adopted by the April 1 statutory
deadline and that such reductions or delays will not have adverse effects on
the City's cash flow or expenditures. In addition, the Federal Budget
negotiation process could result in a reduction in or a delay in the receipt of
Federal grants which could have additional adverse effects on the City's cash
flow or revenues.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1997 through 2000 fiscal
years (the "1997-2000 Financial Plan" or "Financial Plan") . The City's
projections set forth in the Financial Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. Changes in
major assumptions
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could significantly affect the City's ability to balance its budget as required
by State law and to meet its annual cash flow and financing requirements. Such
assumptions and contingencies include the condition of the regional and local
economies, the impact on real estate tax revenues of the real estate market,
wage increases for City employees consistent with those assumed in the
Financial Plan, employment growth, the results of a pending actuarial audit of
the City's pension system which is expected to significantly increase the
City's annual pension costs, the ability to implement proposed reductions in
City personnel and other cost reduction initiatives, which may require in
certain cases the cooperation of the City's municipal unions, the ability of
the New York City Health and Hospitals Corporation ("HHC") and the Board of
Education ("BOE") to take actions to offset reduced revenues, the ability to
complete revenue generating transactions and provision of State and Federal aid
and mandate relief and the impact on City revenues of proposals for Federal and
State welfare reform and any future legislation affecting Medicare or other
entitlements.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 1997 through 2000 contemplates the issuance of $7.7 billion of
general obligation bonds and $5.0 billion of bonds to be issued by the proposed
New York City Infrastructure Finance Authority ("Infrastructure Finance
Authority") to finance education and transportation projects. The creation of
Infrastructure Finance Authority, which is subject to the enactment of State
legislation, is being proposed by the Mayor and the Speaker of the City Council
as part of the City's effort to assist in keeping the City's indebtedness
within the forecast level of the constitutional restrictions on the amount of
debt the City is authorized to incur. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. Depending on the number of factors, including whether the
Legislature is expected to enact legislation creating the Infrastructure
Finance Authority or to take other action that would provide relief under the
general debt limit, the City may find it necessary to curtail its currently
defined capital program before the end of fiscal year 1997 to ensure that there
is ongoing capacity to enter capital contracts necessary to preserve projects
designed to safeguard health and safety in the City. Without the Infrastructure
Finance Authority or other legislative relief, the City's general obligation
financed capital program with respect to new projects would be virtually
brought to a halt during the Financial Plan period. General obligation
borrowing would continue to reimburse the City's general fund for ongoing costs
of existing contractual commitments. In addition, the City issues revenue and
tax anticipation notes to finance its seasonal working capital requirements.
The success of projected public sales of City bonds and notes and
Infrastructure Finance Authority bonds will be subject to prevailing market
conditions, and no assurance can be given that such sales will be completed. If
the City were unable to sell its general obligation bonds and notes or bonds of
the proposed Infrastructure Finance Authority, it would be prevented from
meeting its planned capital and operating expenditures. Future developments
concerning the City and public discussion of such developments, as well as
prevailing market conditions, may affect the market for outstanding City
general obligation bonds and notes.
On November 14, 1996, the City submitted to the Control Board the Financial
Plan for the 1997 through 2000 fiscal years, which relates to the City, the BOE
and the City University of New York ("CUNY"). The Financial Plan is a
modification to the financial plan submitted to the Control Board on June 21,
1996 (the "June Financial Plan").
The June Financial Plan identified actions to close a previously projected
gap of approximately $2.6 billion for the 1997 fiscal year. The proposed
actions in the June Financial Plan for the 1997 fiscal year included (i) agency
actions totaling $1.2 billion; (ii) a revised tax reduction program which would
increase projected tax revenues by $369 million due to the four year extension
of the 12.5% personal income tax surcharge and other actions; (iii) savings
resulting from cost containment in entitlement programs to reduce City
expenditures and additional proposed State aid of $75 million; (iv) the assumed
receipt of revenues relating to rent payments for the City's airports, which
are currently the subject of a dispute with the Port Authority of New York and
New Jersey (the "Port Authority"); (v) the sale of the City's television
station for $207 million; and (vi) pension costs savings totaling $134 million
resulting from a proposed increase in the earnings assumption for pension
assets from 8.5% to 8.75%.
The 1997-2000 Financial Plan published on November 14, 1996 reflects actual
receipts and expenditures and changes in forecast revenues and expenditures
since the June Financial Plan. the 1997-2000 Financial Plan projects revenues
and expenditures for 1997 fiscal year balanced accordance with GAAP, and
projects gaps of $1.2 billion, $2.1 billion and $3.0 billion for the 1998, 1999
and 2000 fiscal years, respectively. Changes since the June Financial Plan
include (i) an increase in projected tax revenues of $450 million, $120
million, $50 million and $45 million in fiscal years 1997 through 2000,
respectively; (ii) a delay in the assumed receipt of $304 million relating to
projected rent payments for the City airports from the 1997 fiscal year to the
1998 and 1999 fiscal years, and a $34 million reduction in assumed State and
Federal aid for the 1997 fiscal year; (iii) an approximately $200 million
increase in projected overtime and other expenditures in each of the fiscal
years 1997 through 2000; (iv) a $70 million increase in expenditures for BOE in
the 1997 fiscal year for school text books; (v) a reduction in projected
pension costs of $34 million, $50 million, $49 million and $47 million in
fiscal years 1997 through 2000, respectively; and (vi) additional agency
actions totaling $179 million, $386 million, $473 million and $589 million in
fiscal years 1997 through 2000, including personnel reductions through
attrition and early retirement.
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The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 12.5% personal income tax surcharge, which
is projected to provide revenue of $170 million, $463 million, $492 million,
and $521 million, in the 1997 through 2000 fiscal years, respectively; (ii)
collection of the projected rent payments for the City's airports, totalling
$270 million and $180 million in the 1998 and 1999 fiscal years, respectively,
which may depend on the successful completion of negotiations with the Port
Authority or the enforcement of the City's rights under the existing leases
thereto through pending legal actions; (iii) the ability of HHC and BOE to
identify actions to offset substantial City and State revenue reductions and
the receipt by BOE of additional State aid; (iv) State approval of the cost
containment initiatives and State aid proposed by the City; and (v) a reduction
in City funding for labor settlements for certain public authorities or
corporations. The Financial Plan does not reflect any increased costs which the
City might incur as a result of welfare legislation recently enacted by
Congress or legislation proposed by the Governor, which would, if enacted,
implement such Federal welfare legislation. In addition, the economic and
financial condition of the City may be affected by various financial, social,
economic and political factors which could have a material effect on the City.
The City's financial plans have been the subject of extensive public comment
and criticism. On July 16, 1996, the staff of the City Comptroller issued a
report on the June Financial Plan. The report concluded that the City's fiscal
situation remains serious, and that the City faces budgetary risks of
approximately $787 million to $941 million for the 1997 fiscal year, which
increase to $4.16 billion to $4.31 billion for fiscal year 2000.
The projections for the 1997 through 2000 fiscal years reflect the costs of
the settlements with the United Federation of Teachers ("UFT") and a coalition
of unions headed by District Council 37 of the American Federation of State,
County and Municipal Employees, which together represent approximately two-
thirds of the City's workforce, and assume that the City will reach agreement
with its remaining municipal unions under terms which are generally consistent
with such settlements. The settlement provides for a wage freeze in the first
two years, followed by a cumulative effective wage increase of 11% by the end
of the five year period covered by the proposed agreements, ending in fiscal
years 2000 and 2001. Additional benefit increases would raise the total
cumulative effective increase to 13% above present costs. Costs associated with
similar settlements for all City-funded employees would total $49 million, $459
million and $1.2 billion in the 1997, 1998 and 1999 fiscal years, respectively,
and exceed $2 billion in each fiscal year after the 1999 fiscal year. There can
be no assurance that the City will reach an agreement with the unions that have
not yet reached a settlement with the City on the terms contained in the
Financial Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through statutory impasse procedures, which can
impose a binding settlement except in the case of collective bargaining with
the UFT, which may be subject to non-binding arbitration. On January 23, 1996,
the City requested the Office of Collective Bargaining to declare an impasse
against the Patrolmen's Benevolent Association and the Uniformed Firefighters
Association.
On July 10, 1995, Standard & Poor's revised downward its rating on City
general obligation bonds from A to BBB+ and removed City bonds from
CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief, a
history of cash flow difficulties caused by State budget delays and continued
high debt levels.
On March 1, 1996, Moody's stated that the rating for City general obligation
bonds remains under review pending the outcome of the adoption of the City's
budget for the 1997 fiscal year, and, in light of the status of the debate on
public assistance and Medicaid reform; the enactment of a State budget, upon
which major assumptions regarding State aid are dependent, which may be
extensively delayed; and the seasoning of the City's economy with regard to its
strength and direction in the face of a potential national economic slowdown.
Since July 15, 1993, Fitch has rated City bonds A-. On February 28, 1996, Fitch
placed the City's general obligation bonds on FitchAlert with negative
implications. On November 5, 1996, Fitch removed the City's general obligation
bonds from FitchAlert, although Fitch stated that the outlook remains negative.
NEW YORK STATE AND ITS AUTHORITIES. The State's current fiscal year commenced
on April 1, 1996, and ends on March 31, 1997, and is referred to herein as the
State's 1996-97 fiscal year. The State's budget for the 1996-97 fiscal year was
enacted by the Legislature on July 13, 1996, more than three months after the
start of the fiscal year. The State Financial Plan for the 1996-97 fiscal year
was formulated on July 25, 1996 and is based on the State's budget as enacted
by the Legislature and signed into law by the Governor, as well as actual
results for the first quarter of the current fiscal year. The State's prior
fiscal year commenced on April 1, 1995, and ended on March 31, 1996, and is
referred to herein as the State's 1995-96 fiscal year.
The State closed projected budget gaps of $5.0 billion and $3.9 billion for
its 1995-96 and 1996-97 fiscal years, respectively. The 1997-98 gap was
projected at $1.44 billion, based on the Governor's proposed budget of December
1995. As a result of changes made in
C-10
<PAGE>
the enacted budget, that gap is now expected to be larger. The gap, however, is
not expected to be as large as those faced in the prior two fiscal years. The
Governor has indicated that he will propose to close any potential imbalance
primarily through General Fund expenditure reductions and without increases in
taxes or deferrals of scheduled tax reductions.
The 1996-97 State Financial Plan is projected to be balanced on a cash basis.
As compared to the Governor's proposed budget as revised on March 20, 1996, the
State's adopted budget for 1996-97 increases General Fund spending by $842
million, primarily from increases for education, special education and higher
education ($563 million). The balance represents funding increases to a variety
of other programs, including community projects and increased assistance to
fiscally distressed cities. Resources used to fund these additional
expenditures include $540 million in increased revenues projected for 1996-97
based on higher-than-projected tax collections during the first half of
calendar 1996, $110 million in projected receipts from a new State tax amnesty
program, and other resources including certain non-recurring resources. The
total amount of non-recurring resources included in the 1996-97 State budget is
projected by the State Division of the Budget ("DOB") to be $1.3 billion, or
3.9 percent of total General Fund receipts.
The State issued its first update to the cash-basis 1996-97 State Financial
Plan (the "Mid-Year Update") on October 25, 1996. The Mid-Year Update reflects
a balanced 1996-97 State Financial Plan, with a reserve for contingencies in
the General Fund of $300 million. This reserve will be utilized to help offset
a variety of potential risks and other unexpected contingencies that the State
may face during the balance of the 1996-97 fiscal year.
The State Financial Plan is based on a June 1996 projection by DOB of
national and State economic activity. The national economy has resumed a more
robust rate of growth after a "soft landing" in 1995, with over 11 million jobs
added nationally since early 1992. The State economy has continued to expand,
but growth remains somewhat slower than in the nation. Although the State has
added approximately 240,000 jobs since late 1992, employment growth in the
State has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, defense, and banking
industries. Government downsizing has also moderated these job gains.
In its Mid-Year Update the State revised its forecast of national and State
economic activity through the end of calendar year 1997 to reflect the
stronger-than-expected growth in the first half of 1996. The national economic
forecast has been changed slightly from the initial forecast on which the
original 1996-97 State Financial Plan was based. The revised forecast projects
real Gross Domestic Product growth in the nation of 2.5 percent for 1996 and
2.4 percent in 1997. The inflation rate is expected to be 3.0 percent in 1996
and 2.9 percent in 1997. The annual rate of job growth is expected to slow
gradually to about 1.8 percent in 1997, down from 2.2 percent in 1996. Growth
in personal income and wages are expected to slow accordingly.
The State economic forecast has been changed slightly from the one formulated
with the July 1996-97 State Financial Plan. Moderate growth is projected to
continue through the second half of 1996, with employment, wages and incomes
continuing their modest rise. Personal income is projected to increase by 5.2
percent in 1996 and 4.7 percent in 1997, reflecting robust projected wage
growth fueled in part by financial sector bonus payments. Overall employment
growth will continue at a modest rate, reflecting the slowdown in the national
economy, continued spending restraint in government, and restructuring in the
health care and financial sectors.
The forecast for continued moderate growth, and any resultant impact on the
State's 1996-97 Financial Plan, contains some uncertainties. Stronger-than-
expected gains in employment could lead to a significant improvement in
consumption spending. Investments could also remain robust. Conversely, the
prospect of a continuing deadlock on federal budget deficit reduction or fears
of excessively rapid economic growth could create upward pressures on interest
rates. In addition, the State economic forecast could over- or underestimate
the level of future bonus payments or inflation growth, resulting in forecasted
average wage growth that could differ significantly from actual growth.
Similarly, the State forecast could fail to correctly account for expected
declines in government and banking employment and the direction of employment
change that is likely to accompany telecommunications deregulation.
The DOB believes that its projections of receipts and disbursements relating
to the current State Financial Plan, and the assumptions on which they are
based, are reasonable. Actual results, however, could differ materially and
adversely from the projections set forth below, and those projections may be
changed materially and adversely from time to time.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results that are worse
than predicted, with corresponding material and adverse effects on the State's
financial projection.
C-11
<PAGE>
The General Fund is the principal operating fund of the State and is used to
account for all financial transactions, except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1996-97 fiscal year, the General Fund is expected to account for
approximately 47 percent of total governmental-fund receipts and 71 percent of
total governmental-fund disbursements. General Fund moneys are also transferred
to other funds, primarily to support certain capital projects and debt service
payments in other fund types.
The General Fund is projected to be balanced on a cash basis for the 1996-97
fiscal year. Actual receipts through the first two quarters of the 1996-97
State fiscal year reflect stronger-than-expected growth in most taxes, with
actual receipts exceeding expectations by $276 million. Based on the revised
economic outlook and actual receipts for the first six months of 1996-97,
projected General Fund receipts for the 1996-97 State fiscal year have been
increased by $420 million. Most of this projected increase is in the yield of
the personal income tax ($241 million), with additional increases now expected
in business taxes ($124 million) and other tax receipts ($49 million).
Projected collections from user taxes and fees have been revised downward
slightly ($5 million). Revisions were also made to both miscellaneous receipts
and in transfers from other funds (an $11 million combined projected increase)
.
Disbursements through the first six months of the fiscal year were $415
million less than projected, primarily because of delays in processing payments
following delayed enactment of the State budget. As a result, no savings are
included in the Mid-Year Update from this slower-than-expected spending.
Projections of 1996-97 General Fund disbursements are increased by $120
million, since increased General Fund disbursements for education are required
to replace a projected decrease in lottery receipts. This modification is shown
in the form of an increased transfer of General Fund monies to the Lottery Fund
in the Special Revenue fund type. The projected closing fund balance in the
General Fund of $337 million reflects a balance of $252 million in the Tax
Stabilization Reserve Fund (following a payment of $15 million during the
current fiscal year) and a deposit of $85 million to the Contingency Reserve
Fund.
On January 13, 1992, Standard & Poor's reduced its ratings on the State's
general obligation bonds from A to A-and, in addition, reduced its ratings on
the State's moral obligation, lease purchase, guaranteed and contractual
obligation debt. Standard & Poor's also continued its negative rating outlook
assessment on State general obligation debt. On April 26, 1993, Standard &
Poor's revised the rating outlook assessment to stable. On February 14, 1994,
Standard & Poor's raised its outlook to positive and, on October 3, 1995,
confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings on
outstanding limited-liability State lease purchase and contractual obligations
from A to Baa1. On October 2, 1995, Moody's reconfirmed its A rating on the
State's general obligation long-term indebtedness.
LITIGATION. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract claims.
While the ultimate outcome and fiscal impact, if any, on the State of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the State's ability
to maintain a balanced 1996-97 State Financial Plan.
The claims involving the City other than routine litigation incidental to the
performance of their governmental and other functions and certain other
litigation arise out of alleged constitutional violations, torts, breaches of
contract and other violations of law and condemnation proceedings. While the
ultimate outcome and fiscal impact, if any, on the City of those proceedings
and claims are not currently predictable, adverse determinations in certain of
them might have a material adverse effect upon the City's ability to carry out
the 1997-2000 Financial Plan. The City has estimated that its potential future
liability on account of outstanding claims against it as of June 30, 1996
amounted to approximately $2.8 billion.
NEW YORK TAXES--
In the opinion of Battle Fowler LLP, 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 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 is generally not excludable from income in computing New York
State and City corporate franchise taxes.
C-12
<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 1997 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 Maryland and filing a Joint Return with $53,000
in taxable income for the 1997 tax year would need a taxable investment
yielding 8.77% 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 MARYLAND
1997 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%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0-
1,000 16.70% 4.80% 6.40% 6.00% 6.60% 7.20% 7.80%
$ 1,001-
2,000 17.55 4.85 5.46 6.06 6.67 7.28 7.88
$ 2,001-
3,000 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 3,001-
41,200 19.25 4.95 5.57 6.19 6.81 7.43 8.05
$ 41,201-
99,600 31.60 5.85 6.58 7.31 8.04 8.77 9.50
$ 99,601-
121,200 34.45 6.10 6.86 7.63 8.39 9.15 9.92
$121,201-
151,750 35.33 6.19 6.96 7.73 8.51 9.28 10.05
$151,751-
271,050 40.23 6.69 7.53 8.36 9.20 10.04 10.87
Over
$271,050 43.75 7.11 8.00 8.89 9.78 10.67 11.56
SINGLE RETURN
$ 0-
1,000 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80%
$ 1,001-
2,000 17.55 4.85 5.46 6.06 6.67 7.28 7.88
$ 2,001-
3,000 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 3,001-
24,650 19.25 4.95 5.57 6.19 6.81 7.43 8.05
$ 24,651-
59,750 31.60 5.85 6.58 7.31 8.04 8.77 9.50
$ 59,751-
121,200 34.45 6.10 6.86 7.63 8.39 9.15 9.92
$121,201-
124,650 35.33 6.19 6.96 7.73 8.51 9.28 10.05
$124,651-
271,050 40.23 6.69 7.53 8.36 9.20 10.04 10.87
Over
$271,050 43.75 7.11 8.00 8.89 9.78 10.67 11.56
</TABLE>
- -------
Note: This table reflects the following:
1 The above tax rates represent 1997 Federal income tax rates and 1996
Maryland income tax rates. Maryland has not yet published its 1997
personal income tax rates.
2 Maryland counties and the city of Baltimore may levy an income tax which
is up to 60 percent of the Maryland state income tax. When considered,
such additional taxes may increase the taxable equivalent yield reflected
above.
3 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions
(including the deduction for state income tax). However, certain itemized
deductions are reduced by the lesser of (i) three percent of the amount
of the taxpayer's AGI over $121,200, or (ii) 80 percent of the amount of
such itemized deductions otherwise allowable. The effect of the three
percent phase out on all itemized deductions and not just those
deductions subject to the phase out is reflected above in the combined
Federal and state tax rates through the use of higher effective Federal
tax rates. In addition, the effect of the 80 percent cap on overall
itemized deductions is not reflected on this table. Federal income tax
rules also provide that personal exemptions are phased out at a rate of
two percent for each $2,500 (or fraction thereof) of AGI in excess of
$181,800 for married taxpayers filing a joint tax return and $121,200 for
single taxpayers. The effect of the phase out of personal exemptions is
not reflected in the table above.
4 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. The effect of this provision is not incorporated
into the table.
5 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.
6 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.
C-13
<PAGE>
STATE OF NEW JERSEY
1997 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 to 41,200 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78%
$ 41,201 to 50,000 29.26% 5.65% 6.36% 7.07% 7.77% 8.48% 9.19%
$ 50,101 to 70,000 29.76% 5.70% 6.41% 7.12% 7.83% 8.54% 9.25%
$ 70,001 to 80,000 30.52% 5.76% 6.48% 7.20% 7.92% 8.64% 9.36%
$ 80,001 to 99,600 31.98% 5.88% 6.62% 7.35% 8.09% 8.82% 9.56%
$ 99,601 to 121,200 34.81% 6.14% 6.90% 7.67% 8.44% 9.20% 9.97%
$121,201 to 150,000 35.69% 6.22% 7.00% 7.77% 8.55% 9.33% 10.11%
$150,001 to 151,750 36.27% 6.28% 7.06% 7.85% 8.63% 9.41% 10.20%
$151,751 to 271,050 41.09% 6.79% 7.64% 8.49% 9.34% 10.18% 11.03%
Over $271,050 44.56% 7.21% 8.12% 9.02% 9.92% 10.82% 11.72%
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 to 24,650 16.49% 4.79% 5.39% 5.99% 6.59% 7.18% 7.78%
$ 24,651 to 35,000 29.26% 5.65% 6.36% 7.07% 7.77% 8.48% 9.19%
$ 35,001 to 40,000 30.52% 5.76% 6.48% 7.20% 7.92% 8.64% 9.36%
$ 40,001 to 59,750 31.78% 5.86% 6.60% 7.33% 8.06% 8.80% 9.53%
$ 59,751 to 75,000 34.62% 6.12% 6.88% 7.65% 8.41% 9.18% 9.94%
$ 75,001 to 121,200 35.40% 6.19% 6.97% 7.74% 8.51% 9.29% 10.06%
$121,201 to 124,650 36.27% 6.28% 7.06% 7.85% 8.63% 9.41% 10.20%
$124,651 to 271,050 41.09% 6.79% 7.64% 8.49% 9.34% 10.18% 11.03%
Over $271,050 44.56% 7.21% 8.12% 9.02% 9.92% 10.82% 11.72%
</TABLE>
- -------
Note: This table reflects the following:
1 The above tax rates represent 1997 Federal income tax rates and 1996 New
Jersey income tax rates. New Jersey has not yet published its 1997
personal income tax rates.
2 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions
(including the deduction for state income tax). However, certain itemized
deductions are reduced by the lesser of (i) three percent of the amount of
the taxpayer's AGI over $121,200, or (ii) 80 percent of the amount of such
itemized deductions otherwise allowable. The effect of the three percent
phase out on all itemized deductions and not just those deductions subject
to the phase out is reflected above in the combined Federal and state tax
rates through the use of higher effective Federal tax rates. In addition,
the effect of the 80 percent cap on overall itemized deductions is not
reflected on this table. Federal income tax rules also provide that
personal exemptions are phased out at a rate of two percent for each
$2,500 (or fraction thereof) of AGI in excess of $181,800 for married
taxpayers filing a joint tax return and $121,200 for single taxpayers. The
effect of this phase out is not reflected in the above table.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. The effect of this provision is not included into
the above table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
5 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or railroad
retirement benefits. The effect of this provision is not included in the
above table.
STATE OF NEW YORK
1997 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to
16,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$ 16,001 to
22,000 18.83 4.93 5.54 6.16 6.78 7.39 8.01
$ 22,001 to
26,000 19.46 4.97 5.59 6.21 6.83 7.45 8.07
$ 26,001 to
40,000 20.02 5.00 5.63 6.25 6.88 7.50 8.13
$ 40,001 to
41,200 20.82 5.05 5.68 6.32 6.95 7.58 8.21
$ 41,201 to
99,600 32.93 5.97 6.71 7.46 8.20 8.95 9.69
$ 99,601 to
121,200 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$121,201 to
151,750 36.59 6.31 7.10 7.89 8.67 9.46 10.25
$151,751 to
271,050 41.39 6.82 7.68 8.53 9.38 10.24 11.09
Over $271,050 44.85 7.25 8.16 9.07 9.97 10.88 11.79
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to
8,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$ 8,001 to
11,000 18.83 4.93 5.54 6.16 6.78 7.39 8.01
$ 11,001 to
13,000 19.46 4.97 5.59 6.21 6.83 7.45 8.07
$ 13,001 to
20,000 20.02 5.00 5.63 6.25 6.88 7.50 8.13
$ 20,001 to
24,650 20.82 5.05 5.68 6.32 6.95 7.58 8.21
$ 24,651 to
59,750 32.93 5.97 6.71 7.46 8.20 8.95 9.69
$ 59,751 to
121,200 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$121,201 to
124,650 36.59 6.31 7.10 7.89 8.67 9.46 10.25
$124,651 to
271,050 41.39 6.82 7.68 8.53 9.38 10.24 11.09
Over $271,050 44.85 7.25 8.16 9.07 9.97 10.88 11.79
- ------------
</TABLE>
Note: This table reflects the following:
1 Taxable income equals adjusted gross income ("AGI") less personal
exemptions of $2,650 less the standard deduction of $6,900 on a joint
return and $4,500 on a single return or total itemized deductions,
whichever is greater. However, itemized deductions are reduced by 3% of
the amount of a taxpayer's AGI over $121,200. 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
$121,200 for single taxpayers and $181,800 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-14
<PAGE>
CITY OF NEW YORK
1997 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%
INCOME BRACKET RATES TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0
to
16,000 7.08% 21.02% 5.07% 5.70% 6.33% 6.96% 7.60% 8.23%
$ 16,001
to
21,600 7.58 21.44 5.09 5.73 6.37 7.00 7.64 8.28
$ 21,601
to
22,000 8.26 22.02 5.13 5.77 6.41 7.05 7.69 8.34
$ 22,001
to
26,000 9.01 22.66 5.17 5.82 6.46 7.11 7.76 8.40
$ 26,001
to
40,000 9.66 23.21 5.21 5.86 6.51 7.16 7.81 8.47
$ 40,001
to
41,200 10.61 24.02 5.26 5.92 6.58 7.24 7.90 8.55
$ 41,201
to
45,000 10.61 35.64 6.22 6.99 7.77 8.55 9.32 10.10
$ 45,001
to
90,000 10.67 35.68 6.22 7.00 7.77 8.55 9.33 10.11
$ 90,001
to
99,600 10.73 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$ 99,601
to
121,200 10.73 38.40 6.49 7.30 8.12 8.93 9.74 10.55
$121,201
to
151,750 10.73 39.23 6.58 7.40 8.23 9.05 9.87 10.70
$151,751
to
271,050 10.73 43.83 7.12 8.01 8.90 9.79 10.68 11.57
Over
$271,050 10.73 47.14 7.57 8.51 9.46 10.40 11.35 12.30
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0
to
8,000 7.08% 21.02% 5.07% 5.70% 6.33% 6.96% 7.60% 8.23%
$ 8,001
to
11,000 7.58 21.44 5.09 5.73 6.37 7.00 7.64 8.28
$ 11,001
to
12,000 8.33 22.08 5.13 5.78 6.42 7.06 7.70 8.34
$ 12,001
to
13,000 9.01 22.66 5.17 5.82 6.46 7.11 7.76 8.40
$ 13,001
to
20,000 9.66 23.21 5.21 5.86 6.51 7.16 7.81 8.47
$ 20,001
to
24,650 10.61 24.02 5.26 5.92 6.58 7.24 7.90 8.55
$ 24,651
to
25,000 10.61 35.64 6.22 6.99 7.77 8.55 9.32 10.10
$ 25,001
to
50,000 10.67 35.68 6.22 7.00 7.77 8.55 9.33 10.11
$ 50,001
to
59,750 10.73 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$ 59,751
to
121,200 10.73 38.40 6.49 7.30 8.12 8.93 9.74 10.55
$121,201
to
124,650 10.73 39.23 6.58 7.40 8.23 9.05 9.87 10.70
$124,651
to
271,050 10.73 43.83 7.12 8.01 8.90 9.79 10.68 11.57
Over
$271,050 10.73 47.14 7.57 8.51 9.46 10.40 11.35 12.30
</TABLE>
- -------
Note: This table reflects the following:
1 Taxable income equals adjusted gross income ("AGI") less personal
exemptions of $2,650 less the standard deduction of $6,900 on a joint
return and $4,150 on a single return or total itemized deductions,
whichever is greater. However, itemized deductions are reduced by 3% of
the amount of a taxpayer's AGI over $121,200. 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
$121,200 for single taxpayers and $181,800 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.
5 New York City tax rate includes base tax plus surcharge of 14% of base.
C-15
<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-6
INDEPENDENT AUDITORS' REPORT............................................... A-7
STATEMENTS OF FINANCIAL CONDITION OF THE TAX EXEMPT SECURITIES TRUST....... A-8
NOTES TO PORTFOLIOS OF SECURITIES.......................................... A-12
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-17
REINVESTMENT PROGRAMS..................................................... B-17
SPONSOR'S AND UNDERWRITERS' PROFITS....................................... B-17
RIGHTS OF UNIT HOLDERS..................................................... B-18
CERTIFICATES.............................................................. B-18
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-22
AMENDMENT................................................................. B-22
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-13
</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
------------
9,000 UNITS
------------
Prospectus
Dated December 20, 1996
------------
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.
SEC FILE OR
IDENTIFICATION NO.
------------------
I. Bonding Arrangements and Date of Organization of the Depositor filed pursuant
to Items A and B of Part II of the Registration Statement on Form S-6 under
the Securities Act of 1993:
Smith Barney Inc. 2-55436
II. Information as to Officers and Directors of the Depositor filed pursuant to
Schedules A and D of Form BD under Rules 15b1-1 and 15b3-1 of the Securities
Exchange Act of 1934:
Smith Barney Inc. 8-8177
III. Charter documents of the Depositor filed as Exhibits to the Registration
Statement on Form S-6 under the Securities Act of 1933 (Charter, By-Laws):
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
The Chase Manhattan Bank 13-4994650
UNDERTAKING
The Sponsor undertakes that it will not instruct the Trustee to accept from
(i) any insurance company affiliated with the Sponsor, in settlement of any
claim, less than an amount sufficient to pay any principal or interest (and, in
the case of a taxability redemption, premium) then due on any Security in
accordance with the municipal bond guaranty insurance policy attached to that
Security or (ii) any affiliate of the Sponsor who has any obligation with
respect to any Security, less than the full amount due pursuant to the
obligation, unless those instructions have been approved by the Securities and
Exchange Commission pursuant to Rule 17d-1 under the Investment Company Act of
1940.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
THE REGISTRATION STATEMENT ON FORM S-6 COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:
The facing sheet of Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Registration Statement of Tax Exempt Securities Trust, Series
384, 1933 Act File No. 33-50915).
The Prospectus.
Additional Information not included in the Prospectus (Part II).
Consent of Independent Auditors.
The following exhibits:
<TABLE>
<C> <S>
1.1 --Form of Trust Indenture and Agreement (incorporated by reference to
Exhibit 4.a to the Registration Statement of Tax Exempt Securities
Trust, Series 265, 1933 Act File No. 33-15123).
1.1.1 --Form of Reference Trust Agreement (incorporated by reference to
Exhibit 1.1.1 of Tax Exempt Securities Trust, National Trust 208, 1933
Act File No. 33-58591).
1.2 --Form of Agreement Among Underwriters (incorporated by reference to
Exhibit 99 to the Registration Statement of Tax Exempt Securities
Trust, Series 384, 1933 Act File No. 33-50915).
2.1 --Form of Certificate of Beneficial Interest (included in Exhibit 1.1).
3.1 --Opinion of counsel as to the legality of the securities being issued
including their consent to the use of their name under the headings
"Taxes", "Legal Opinion" and "New York Taxes" in the Prospectus.
3.2 --Opinion of special Maryland counsel.
3.3 --Opinion of special New Jersey counsel.
4.1 --Consent of the Evaluator.
5.1 --Consent of KPMG Peat Marwick LLP.
</TABLE>
II-2
<PAGE>
SIGNATURES
The registrant, Tax Exempt Securities Trust, Maryland Trust 99, New Jersey
Trust 129, and New York Trust 159, hereby identifies Series 1, Series 357 and
National Trust 208 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 20TH DAY OF DECEMBER, 1996.
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 H. Lessin
/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> 0000943221
<NAME> MARYLAND TRUST 99
<SERIES>
<NUMBER> 1
<NAME> MARYLAND TRUST 99
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-20-1996
<PERIOD-END> DEC-20-1996
<INVESTMENTS-AT-COST> 1,963,806
<INVESTMENTS-AT-VALUE> 1,963,806
<RECEIVABLES> 29,553
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,000
<TOTAL-ASSETS> 1,998,359
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,553
<TOTAL-LIABILITIES> 34,553
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,963,806
<SHARES-COMMON-STOCK> 2,000
<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> 1,998,359
<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> 2,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,998,359
<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> 0000943284
<NAME> NEW JERSEY TRUST 129
<SERIES>
<NUMBER> 1
<NAME> NEW JERSEY TRUST 129
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-20-1996
<PERIOD-END> DEC-20-1996
<INVESTMENTS-AT-COST> 1,950,895
<INVESTMENTS-AT-VALUE> 1,950,895
<RECEIVABLES> 27,121
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,000
<TOTAL-ASSETS> 1,983,016
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32,121
<TOTAL-LIABILITIES> 32,121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,950,895
<SHARES-COMMON-STOCK> 2,000
<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> 1,983,016
<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> 2,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,950,895
<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> 0000943253
<NAME> NEW YORK TRUST 159
<SERIES>
<NUMBER> 1
<NAME> NEW YORK TRUST 159
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-20-1996
<PERIOD-END> DEC-20-1996
<INVESTMENTS-AT-COST> 4,884,967
<INVESTMENTS-AT-VALUE> 4,884,967
<RECEIVABLES> 92,552
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 12,500
<TOTAL-ASSETS> 4,990,019
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 105,052
<TOTAL-LIABILITIES> 105,052
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,884,967
<SHARES-COMMON-STOCK> 5,000
<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> 4,990,019
<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> 5,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,884,967
<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
BATTLE FOWLER LLP
A LIMITED LIABILITY PARTNERSHIP
PARK AVENUE TOWER
75 EAST 55TH STREET
NEW YORK, N.Y. 10022
(212) 856-7000
December 19, 1996
Smith Barney Inc.
Unit Trust Department
388 Greenwich Street, 23rd Floor
New York, New York 10013
RE: TAX EXEMPT SECURITIES TRUST, MARYLAND TRUST 99, NEW JERSEY TRUST 129 AND
NEW YORK TRUST 159
Dear Sirs:
We have acted as special counsel for Smith Barney Inc. as Depositor, Sponsor
and Principal Underwriter (the "Depositor") of Tax Exempt Securities Trust,
Maryland Trust 99, New Jersey Trust 129 and New York Trust 159 (collectively,
the "Trusts") in connection with the deposit of securities (the "Securities")
therein pursuant to the Trust Agreements referred to below, by which the Trusts
were created and under which the units of fractional undivided interest
(collectively, the "Units") have been issued. Pursuant to the Trust Agreements
the Depositor has transferred to the Trusts certain long-term bonds and
contracts to purchase certain long-term bonds together with irrevocable letters
of credit to be held by the Trustee upon the terms and conditions set forth in
the Trust Agreements. (All bonds to be acquired by the Trusts are collectively
referred to as the "Bonds".)
In connection with our representation, we have examined the originals or
certified copies of the following documents relating to the creation of the
Trusts, the deposit of the Securities and the issuance and sale of the Units:
(a) the Trust Indenture and Agreement dated July 16, 1987 and the Reference
Trust Agreements of even date herewith relating to each Trust (collectively,
the "Trust Agreements") among the Depositor, The Chase Manhattan Bank as
Trustee, and Kenny S&P Evaluation Services, as Evaluator; (b) the Closing
Memorandum relating to the deposit of the Securities in the Trusts; (c) the
Notification of Registration on Form N-8A and the Registration Statement on
Form N-8B-2, as amended, relating to the Trusts, as filed with the Securities
and Exchange Commission (the "Commission") pursuant to the Investment Company
Act of 1940 (the "1940 Act"); (d) the Registration Statements on Form S-6
(Registration Nos. 333-14909, 333-10131 and 333-14905) filed with the
Commission pursuant to the Securities Act of 1933 (the "1933 Act"), and
Amendment No. 1 thereto (said Registration Statements, as amended by said
Amendment No. 1 being herein called the "Registration Statement"); (e) the
proposed form of final prospectus (the "Prospectus") relating to the Units,
which is expected to be filed with the Commission this day; (f) resolutions of
the Executive Committees of the Depositor authorizing the execution and
delivery by the Depositor of the Trust Agreements and the consummation of the
transactions contemplated thereby; (g) the Certificates of Incorporation and
By-laws of the Depositor, each certified to by an authorized officer of the
Depositor as of a recent date; (h) a certificate of an authorized officer of
the Depositor with respect to certain factual matters contained therein
("Officers Certificate"); and (i) certificates or telegrams of public officials
as to matters set forth upon therein.
We have assumed the genuineness of all agreements, instruments and documents
submitted to us as originals and the conformity to originals of all copies
thereof submitted to us. We have also assumed the genuineness of all signatures
and the legal capacity of all persons executing agreements, instruments and
documents examined or relied upon by us.
Where matters are stated to be "to the best of our knowledge" or "known to
us," our knowledge is limited to the actual knowledge of those attorneys in our
office who have performed services for the Trust, their review of documents
provided to us by the Depositor in connection with this engagement and
inquiries
<PAGE>
of officers of the Depositor, the results of which are reflected in the
Officers Certificate. We have not independently verified the accuracy of the
matters set forth in the written statements or certificates upon which we have
relied. We have not reviewed the financial statements, compilation of the Bonds
held by the Trusts, or other financial or statistical data contained in the
Registration Statement and the Prospectus, as to which we understand you have
been furnished with the reports of the accountants appearing in the
Registration Statement and the Prospectus. In addition, we have made no
specific inquiry as to whether any stop order or investigatory proceedings have
been commenced with respect to the Registration Statement or the Depositor nor
have we reviewed court or governmental agency dockets.
We have relied without independent investigation upon the opinion dated the
date hereof of Weinberg & Green LLC, 100 South Charles Street, Baltimore,
Maryland 21201-2773 and Shanley & Fisher, 131 Madison Avenue, Morristown, New
Jersey 07962 delivered to the Depositor with respect to the questions of law of
the States of Maryland and New Jersey, respectively, and with respect to any
disclosure contained in the Registration Statement concerning risk factors
relating to the Bonds of Maryland Trust 99 and New Jersey Trust 129,
respectively.
Statements in this opinion as to the validity, binding effect and
enforceability of agreements, instruments and documents are subject: (i) to
limitations as to enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application relating to or
affecting the enforceability of creditors' rights, and (ii) to limitations
under equitable principles governing the availability of equitable remedies.
We are not admitted to the practice of law in any jurisdiction but the State
of New York and we do not hold ourselves out as experts in or express any
opinion as to the laws of other states or jurisdictions except as to matters of
Federal and Delaware corporate law. No opinion is expressed as to the effect
that the law of any other jurisdiction might have upon the subject matter of
the opinions expressed herein under applicable conflicts of law principles,
rules or regulations or otherwise.
Based on the subject to the foregoing, we are of the opinion that:
(1) The Trust Agreements have been duly authorized and executed and delivered
by an authorized officer of the Depositor and are valid and binding obligations
of the Depositor in accordance with their respective terms.
(2) The execution and delivery of the Certificates evidencing the Units has
been duly authorized by the Depositor and such Certificates when executed by
the Depositor and the Trustee in accordance with the provisions of the
Certificates and the respective Trust Agreements and issued for the
consideration contemplated therein, will constitute fractional undivided
interests in the respective Trusts, will be entitled to the benefits of the
respective Trust Agreements, and will conform in all material respects to the
description thereof contained in the Prospectus under the caption heading
"Rights of Unit Holders--Certificates". Upon payment of the consideration for
the Units as provided in the Trust Agreements and the Registration Statement,
the Units will be fully paid and non-assessable by the Trusts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement
and in the Prospectus under the headings "Tax Status" and "Legal Opinions".
This opinion is intended solely for the benefit of the addressee in connection
with the issuance of the Units of the Trust and may not be relied upon in any
other manner or by any other person without our express written consent.
Very truly yours,
Battle Fowler LLP
<PAGE>
EXHIBIT 3.2
WEINBERG & GREEN LLC
----------------
ATTORNEYS AT LAW
100 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201-2773
----------------
TELEPHONE 410/332 8600
WASHINGTON AREA 301/470 7400
FACSIMILE 410/332 8862
10480 LITTLE PATUXENT PARKWAY
COLUMBIA, MARYLAND 21044-3506
410/740 8500
---------- ----------
ROBERT A. SPAR FILE NUMBER
410/332 8654 36290.1
December 19, 1996
Smith Barney Inc. 388 Greenwich Street New York, New York 10013
The Chase Manhattan Bank 4 New York Plaza New
York, New York 10004
RE: TAX EXEMPT SECURITIES TRUST, MARYLAND TRUST 99
Ladies and Gentlemen:
We have acted as special Maryland counsel to you as sponsors (the "Sponsors")
and trustee of the above-reference tax-exempt securities trust (the "Trust"),
which includes an individual trust (the "Maryland Trust") holding certain bonds
and other securities (the "Bonds"). You have asked that we, acting in such
capacity, render an opinion to you with respect to certain matters relating to
the tax treatment under the laws of Maryland of the Maryland Trust and of the
units of fractional undivided interest in the Maryland Trust (the "Units") to
be issued pursuant to a Registration Statement (No. 333-14909) on Form S-6
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Registration Statement").
As a basis for our opinions, we have examined such provisions of Maryland law
as we considered relevant. We are relying on the opinions of Battle Fowler LLP,
special counsel to the Sponsors, as to the federal income tax consequences of
an investment in the Trust.
Each Unit represents a fractional undivided interest in the Maryland Trust.
In the opinion of Battle Fowler LLP, for federal income tax purposes:
(a) the Maryland Trust is not an association taxable as a corporation;
(b) a holder of units ("Holder") is considered the owner of a pro rata
portion of each Bond in the Maryland Trust under the grantor trust rules of
Sections 671-678 of the Internal Revenue Code of 1986, as amended;
(c) a Holder will be considered to have received the interest on such
Holder's pro rata portion of each Bond when interest on the Bond is
received by the Maryland Trust;
(d) a Holder will recognize taxable gain or loss when all or part of such
Holder's pro rata portion of a Bond in the Maryland Trust is disposed of
(whether by sale, exchange, redemption, or payment at maturity) or when the
Holder redeems or sells such Holder's units.
It is our understanding, and the following opinions assume, that the Maryland
Trust will have no income other than interest income on the Bonds including,
when earned or received, any amount attributable to original issue discount
which is treated as interest income for federal income tax purposes and gain on
the disposition of the Bonds.
In general, it is noted that under the terms of the Maryland statutes which
authorize the issuance of bonds of the State of Maryland, its political
subdivisions and authorities, the Bonds, the income therefrom and any profit
made on
<PAGE>
the sale or exchange thereof shall at all times be free from taxation of every
kind by the State of Maryland and by the municipalities and all other political
subdivisions of the State of Maryland; in general, those statutes do not refer
to estate or inheritance taxes or franchise taxes on financial institutions
which are measured by net earnings or any other taxes not levied or assessed
directly on those bonds, their transfer or the income therefrom.
Based, in part, upon our understanding that the Maryland Trust consists of
Bonds issued by the State of Maryland, the Government of Puerto Rico, the
Government of Guam and their respective political subdivisions and authorities;
and that, in the opinion of bond counsel the interest on the Bonds will be
excluded from gross income for federal income tax purposes (except in certain
circumstances referred to in the Prospectus), Weinberg & Green LLC, special
Maryland counsel for this Trust are of the opinion that for Maryland State and
local tax purposes:
1. 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.
2. 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. Subject to a
three-year phase-in period, interest on Bonds is not subject to the
Maryland Franchise Tax imposed on "financial institutions."
3. 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.
4. 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. Subject to a three-year phase-in
period, profits realized on the sale or exchange of Bonds are not subject
to the Maryland Franchise Tax imposed on "financial institutions."
5. Units of the Maryland Trust will be subject to Maryland inheritance
and estate tax only if held by Maryland residents.
6. Neither the Bonds nor the Units will be subject to Maryland personal
property tax.
7. The sales of Units in Maryland or the holding of Units in Maryland
will not be subject to Maryland Sales or Use Tax.
At your request, we have also reviewed certain official statements relating
to Bonds of the State of Maryland and certain of its subdivisions, agencies or
instrumentalities available to us as of this date with respect only to general
risk factors relating to such Bonds. We have not reviewed each official
statement relating to each of the Bonds included in the Maryland Trust. We have
neither reviewed the accuracy or completeness of, or otherwise verified, the
information contained in those official statements nor have we reviewed any
risk factors which are discussed in the Prospectus other than those relating
specifically to Bonds issued by the State of Maryland, its political
subdivisions and their respective authorities. Based solely upon the review
described above, we confirm that, in our opinion, (i) the materials in the
Prospectus under "State Risk Factors" neither contain any untrue statement of,
nor omit to state a material fact included in, any of the official statements
we have reviewed with respect to Maryland and (ii) the summary of matters of
Maryland
<PAGE>
law contained in the Prospectus under "Taxes" is accurate. We hereby consent to
the reference to this firm in the Prospectus comprising a part of the
Registration Statement and we consent to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
Weinberg & Green LLC
Robert A. Spar
By:___________________________________
<PAGE>
EXHIBIT 3.3
Shanley & Fisher
A PROFESSIONAL CORPORATION
COUNSELORS AT LAW
131 MADISON AVENUE
MORRISTOWN, NEW JERSEY 07962-1979
(201) 285-1000
Smith Barney Inc. December 19, 1996
388 Greenwich Street
New York, New York 10013
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
RE: TAX-EXEMPT SECURITIES TRUST NEW JERSEY TRUST 129
Gentlemen:
We have acted as special New Jersey counsel respecting only New Jersey tax
matters in connection with the issuance of Units of Tax-Exempt Securities
Trust, New Jersey Trust 129, including specifically the New Jersey Trust. We
have reviewed the Trust Indenture and Agreement among Smith Barney Inc., as
Depositor, The Chase Manhattan Bank, as Trustee, and Kenny S&P Evaluation
Services, a business unit of J.J. Kenny Company, Inc., as Evaluator, and the
Reference Trust Agreement supplementing and amending the aforesaid Trust
Indenture and Agreement respecting this Multistate Series (together, the "Trust
Agreement").
This opinion is given and limited to matters of New Jersey tax law respecting
the New Jersey Trust.
We assume that within the meaning of the New Jersey Gross Income Tax Act all
obligations held by the New Jersey Trust are issued by or on behalf of New
Jersey or any county, municipality, school or other district, agency,
commission, instrumentality, public corporation (including one created or
existing pursuant to agreement or compact with New Jersey or any other state)
or such obligations are statutorily free from taxation under the laws of the
United States.
Based upon and subject to the foregoing, we are of the opinion that:
1. The proposed activities of the New Jersey Trust will not cause it to
be subject to the New Jersey Corporation Business Tax Act.
2. The income of the New Jersey Trust will be treated as the income of
individuals, estates and trusts who are the Holders of Units of the New
Jersey Trust for purposes of the New Jersey Gross Income Tax Act, and
interest which is exempt from tax under the New Jersey Gross Income Tax Act
when received by the New Jersey Trust will retain its status as tax-exempt
in the hands of such Unit Holders. Gains arising from the sale or
redemption by a Holder of his Units or from the sale, exchange, redemption,
or payment at maturity of a Bond by the New Jersey Trust are exempt from
taxation under the New Jersey Gross Income Tax Act (P. L. 1976 c. 47), as
enacted and construed on the date hereof, to the extent such gains are
attributable to Bonds, the interest on which is exempt from tax under the
New Jersey Gross Income Tax Act. Any loss realized on such disposition may
not be utilized to offset gains realized by such Unit Holder on the
disposition of assets the gain on which is subject to the New Jersey Gross
Income Tax Act.
3. Units of the New Jersey Trust may be subject, in the estates of New
Jersey residents, to taxation under the Transfer Inheritance Tax Law of the
State of New Jersey.
<PAGE>
We consent to the use of our name under the captions "Taxes" and "Legal
Opinions" in the Prospectus comprising a part of the Registration Statement on
Form S-6, as amended, and we consent to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
Shanley & Fisher, P.C.
<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
Frank A. Ciccotto, Jr.
Vice President
December 19, 1996
Smith Barney Inc.
388 Greenwich St., 23rd Floor
New York, N.Y. 10013
The Chase Manhattan Bank
Unit Trust Division
4 New York Plaza
New York, N.Y. 10004
Re: Tax-Exempt Securities Trust
Maryland Trust 99
New Jersey Trust 129
New York Trust 159
Gentlemen:
We have examined Registration Statement File Nos. 333-14909, 333-10131 and
333-14905 for the above-mentioned 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 as of the date of the evaluation
report.
You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.
Sincerely,
Frank A. Ciccotto, Jr.
Vice President
<PAGE>
EXHIBIT 5.1
CONSENT OF INDEPENDENT AUDITORS
To the Sponsor, Trustee and Unit Holders of
Tax Exempt Securities Trust, Maryland Trust 99, New Jersey Trust 129 and New
York Trust 159:
We consent to the use of our report dated December 19, 1996 included herein
and to the reference to our firm under the heading "Auditors" in the
Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
December 19, 1996
