<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1995
REGISTRATION NOS. 33-61261
33-62033
33-59179
33-62055
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. EXACT NAME OF TRUST:
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 211
CALIFORNIA TRUST 143
NEW JERSEY TRUST 124
NEW YORK TRUST 147
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:
PIERRE DE SAINT PHALLE, ESQ.
Davis Polk & Wardwell
450 Lexington Ave.
New York, New York 10017
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
AN INDEFINITE NUMBER OF UNITS OF BENEFICIAL INTEREST PURSUANT TO RULE 24f-2
PROMULGATED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED.
F. PROPOSED MAXIMUM AGGREGATE OFFERING PRICE TO THE PUBLIC OF THE SECURITIES
BEING REGISTERED:
INDEFINITE
G. AMOUNT OF FILING FEE:
$500 (AS REQUIRED BY RULE 24f-2)
H. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
[X] Check box if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
---------------------------------------------------------
TAX EXEMPT
SECURITIES
TRUST
National Trust 211 California Trust 143
New Jersey Trust 124 New York Trust 147
---------------------- ---------------------------------------------------
19,000 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 National Trust 211, California Trust 143, New Jersey Trust
124 and New York Trust 147 (the "National Trust," the "California 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 September 7, 1995, the Public
Offering Price per Unit (including the sales charge) would have been $1,026.37,
$986.68, $1,030.94 and $1,023.31 for the National Trust, California 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 September 8, 1995
<PAGE>
TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF SEPTEMBER 7, 1995 +
SPONSOR RECORD DATES
Smith Barney Inc.
The first day of each month,
commencing October 1, 1995
TRUSTEE
DISTRIBUTION DATES
The Chase Manhattan Bank
(National Association)
The fifteenth day of each
month,** commencing October 15,
1995
EVALUATOR
Kenny S & P Evaluation EVALUATION TIME
Services,
a division of J.J. Kenny Co., As of 1:00 P.M. on the Date of
Inc. Deposit. Thereafter, as of
4:00 P.M. New York Time.
DATE OF DEPOSIT AND OF TRUST
AGREEMENT
EVALUATOR'S FEE
The Evaluator will receive a
September 7, 1995 fee of $.29 per bond per
evaluation. (See Part B,
"Evaluator--Responsibility"
and "Public Offering--Offering
Price".)
MANDATORY TERMINATION DATE*
Each Trust will terminate on the
date of maturity, redemption,
sale or other disposition of the
last Bond held in the Trust.
SPONSOR'S ANNUAL PORTFOLIO
SUPERVISION FEE***
Maximum of $.25 per $1,000
face amount of the underlying
Bonds.
-------
+The Date of Deposit. The Date of Deposit is the date on which the Trust
Agreement was signed and the deposit with the Trustee was made.
* The actual date of termination of each trust may be considerably earlier
(see Part B, "Amendment and Termination of the Trust Agreement--
Termination").
** The first monthly income distribution of $3.96, $3.79, $3.79 and $3.82 for
the National Trust, California Trust, New Jersey Trust and New York Trust,
respectively, will be made on October 15, 1995.
***In addition to this amount, the Sponsor may be reimbursed for bookkeeping
and other administrative expenses not exceeding its actual costs.
A-2
<PAGE>
<TABLE>
<CAPTION>
NATIONAL CALIFORNIA NEW JERSEY NEW YORK
TRUST 211 TRUST 143 TRUST 124 TRUST 147
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Principal Amount of Bonds in
Trust........................ $10,000,000 $3,000,000 $3,000,000 $3,000,000
Number of Units............... 10,000 3,000 3,000 3,000
Principal Amount of Bonds in
Trust per Unit............... $ 1,000 $ 1,000 $ 1,000 $ 1,000
Fractional Undivided Interest
in Trust per Unit............ 1/10,000 1/3,000 1/3,000 1/3,000
Minimum Value of Trust:
Trust Agreement may be Ter-
minated if Principal Amount
is less than............... $ 5,000,000 $1,500,000 $1,500,000 $1,500,000
Calculation of Public Offering
Price per Unit*:
Aggregate Offering Price of
Bonds in Trust............. $ 9,781,341 $2,820,915 $2,947,461 $2,925,620
=========== ========== ========== ==========
Divided by Number of Units.. $ 978.13 $ 940.31 $ 982.49 $ 975.21
Plus: Sales Charge (4.70% of
the Public Offering Price). $ 48.24 $ 46.37 $ 48.45 $ 48.10
----------- ---------- ---------- ----------
Public Offering Price per
Unit....................... $ 1,026.37 $ 986.68 $ 1,030.94 $ 1,023.31
Plus: Accrued Interest*..... $ .99 $ .94 $ .94 $ .95
----------- ---------- ---------- ----------
Total..................... $ 1,027.36 $ 987.62 $ 1,031.88 $ 1,024.26
=========== ========== ========== ==========
Sponsor's Initial Repurchase
Price per Unit (per Unit
Offering
Price of Bonds)*............ $ 978.13 $ 940.31 $ 982.49 $ 975.21
Approximate Redemption Price
per Unit (per Unit Bid
Price of Bonds)**.......... $ 974.13 $ 936.31 $ 978.49 $ 969.87
----------- ---------- ---------- ----------
Difference Between per Unit
Offering and Bid Prices of
Bonds........................ $ 4.00 $ 4.00 $ 4.00 $ 5.34
=========== ========== ========== ==========
Calculation of Estimated Net
Annual Income per Unit:
Estimated Annual Income per
Unit....................... $ 62.09 $ 59.39 $ 59.49 $ 59.95
Less: Estimated Trustee's
Annual Fee***.............. $ 1.49 $ 1.36 $ 1.36 $ 1.36
Less: Organizational Ex-
penses****................. $ .40 $ .40 $ .40 $ .40
Less: Other Estimated Annual
Expenses................... $ .68 $ .75 $ .85 $ .83
----------- ---------- ---------- ----------
Estimated Net Annual Income
per Unit................... $ 59.52 $ 56.88 $ 56.88 $ 57.36
=========== ========== ========== ==========
Calculation of Monthly Income
Distribution per Unit:
Estimated Net Annual Income
per Unit................... $ 59.52 $ 56.88 $ 56.88 $ 57.36
Divided by 12............... $ 4.96 $ 4.74 $ 4.74 $ 4.78
Accrued interest from the day
after the Date of Deposit
to the first record date**. $ 3.96 $ 3.79 $ 3.79 $ 3.82
First distribution per unit... $ 3.96 $ 3.79 $ 3.79 $ 3.82
Daily Rate (360-day basis) of
Income Accrual per Unit...... $ .1653 $ .1580 $ .1580 $ .1593
Estimated Current Return based
on Public Offering
Price*****................... 5.80% 5.76% 5.52% 5.61%
Estimated Long-Term Re-
turn*****.................... 5.72% 5.85% 5.37% 5.59%
</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. The effect of the delay
in the payment to Unit holders for the first few months of Trust
operations, which results in a lower true return to Unit holders, is not
reflected in either calculation (a projected cash flow statement as of
the Date of Deposit is available upon request from the Trustee).
A-3
<PAGE>
PORTFOLIO SUMMARY AS OF DATE OF DEPOSIT
NATIONAL TRUST 211
The Portfolio of the National Trust contains 23 issues of Bonds of issuers
located in 17 States. 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: 41.9%; housing facilities: 27.0%; power
facilities: 19.5%; pollution control facilities: 2.2%; water and sewer
facilities: 2.9%; convention facilities: 6.5%. 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.) In
addition, 7.3% of the Bonds in this Trust are subject to redemption or sinking
fund provisions early in the life of the Trust. (See "Redemption Provisions"
under "Portfolio of Securities".) Fifteen Bonds in this Trust have been issued
with an "original issue discount." (See Part B, "Taxes.") The average life to
maturity of the Bonds in the National Trust is 28.3 years.
As of the Date of Deposit, 91.9% of the Bonds in this Trust are rated by
Standard & Poor's (11.5% rated AAA and 80.4% rated A); 8.1% are rated A by
Moody's. For a description of the meaning of the applicable rating symbols as
published by the rating agencies, see Part B, "Bond Ratings." It should be
emphasized, however, that the ratings of the rating agencies represent their
opinions as to the quality of the Bonds which they undertake to rate, and that
these ratings are general and are not absolute standards of quality and may
change from time to time.
2.1% of the Bonds in the National Trust were acquired from the Sponsor as
sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
CALIFORNIA TRUST 143
The Portfolio of the California Trust contains 8 issues of Bonds of issuers
located in the State of California. 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: 47.9%; housing facilities:
17.5%; educational facilities: 8.7%; public improvement: 17.1%; public lease
rental payments: 8.8%. The Trust is considered to be concentrated in hospital
and health care facilities issues.+ (See Part B, "Tax Exempt Securities
Trust--Risk Factors" for a brief summary of additional considerations relating
to certain of these issues.) Six 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 California Trust is 25.1 years.
As of the Date of Deposit, 79.3% of the Bonds in this Trust are rated A by
Standard & Poor's; 20.7% are rated A by Moody's. For a description of the
meaning of the applicable rating symbols as published by the rating agencies,
see Part B, "Bond Ratings." It should be emphasized, however, that the ratings
of the rating agencies represent their opinions as to the quality of the Bonds
which they undertake to rate, and that these ratings are general and are not
absolute standards of quality and may change from time to time.
37.4% of the Bonds in the California 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 124
The Portfolio of the New Jersey Trust contains 9 issues of Bonds of issuers
located in the State of New Jersey and the Commonwealth of Puerto Rico. Of the
Bonds in this Trust, two were issued by issuers in the Commonwealth of Puerto
Rico (representing 16.5%* of the Bonds in the Trust), one was issued to
finance electric facilities and one was issued to finance hospital facilities.
The remaining issues are payable from the income of specific projects or
authorities and are not supported by the issuer's power to levy taxes.
Although income to pay such Bonds may be derived from more than one source,
the primary sources of such income and the percentage of the Bonds in this
Trust deriving income from such sources are as follows: housing facilities:
34.7%; transportation facilities: 14.6%; pollution control facilities: 8.1%;
educational facilities: 4.8%; lease rental payments: 17.0%; recreational
facilities: 4.3%. The Trust is considered to be concentrated in 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.) 22.7% of the Bonds in this Trust are insured as to timely
-------
* 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>
payment of principal and interest by certain insurance companies (MBIA, 22.7%)
(see Part B, "Tax Exempt Securities Trust--Risk Factors--Insurance"). Six
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 28.5 years.
As of the Date of Deposit, 95.7% of the Bonds in this Trust are rated by
Standard & Poor's (31.3% rated AAA, 4.8% rated AA and 59.6% rated A); 4.3% 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.
8.1 % 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 147
The Portfolio of the New York Trust contains 10 issues of Bonds of issuers
located in the State of New York 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 7.4%* of the Bonds in the Trust) and was issued to finance
electric facilities. One of the issues (representing approximately 8.7% 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 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: 25.7%; housing facilities:
19.9%; educational facilities: 21.9%; water and sewer facilities: 8.8%;
correctional facilities: 7.6%. The Trust is considered to be concentrated in
hospital and health care facilities issues.+ (See Part B, "Tax Exempt
Securities Trust--Risk Factors" for a brief summary of additional
considerations relating to certain of these issues.) 8.9% of the Bonds in this
Trust are insured as to timely payment of principal and interest by certain
insurance companies (CGIC, 8.9%); (see Part B, "Tax Exempt Securities Trust--
Risk Factors--Insurance"). Six 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 29.9 years.
As of the Date of Deposit, 58.3% of the Bonds in this Trust are rated by
Standard & Poor's (8.9% rated AAA, 33.3% rated AA and 16.1% rated A); 3.4% are
rated Aa by Moody's; 38.3% are rated A by Fitch. For a description of the
meaning of the applicable rating symbols as published by the rating agencies,
see Part B, "Bond Ratings." It should be emphasized, however, that the ratings
of the rating agencies represent their opinions as to the quality of the Bonds
which they undertake to rate, and that these ratings are general and are not
absolute standards of quality and may change from time to time.
None of the Bonds in the New York Trust were acquired from the Sponsor as
sole underwriter or from an underwriting syndicate in which the Sponsor
participated, or otherwise from the Sponsor's own organization. (See Part B,
"Public Offering--Sponsor's and Underwriters' Profits.")
-------
* Percentages computed on the basis of the aggregate offering price of the
Bonds in the Trust on the Date of Deposit.
+ A Trust is considered to be "concentrated" in a particular category when the
Bonds in that category constitute 25% or more of the aggregate offering price
of the Bonds in the Trust.
A-5
<PAGE>
UNDERWRITING
The names and addresses of the Underwriters and the number of Units to be
sold by them are as follows:
<TABLE>
<CAPTION>
UNITS
-------------------------------------------------------------------------------
NATIONAL TRUST 211 CALIFORNIA TRUST 143 NEW JERSEY TRUST 124 NEW YORK TRUST 147
------------------ -------------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Smith Barney Inc. ...... 8,250 2,900 2,700 2,450
1345 Avenue of the Amer-
icas
New York, New York 10105
Gruntal & Co. Incorpo-
rated.................. 500 100 100 100
14 Wall Street
New York, New York 10005
Oppenheimer & Co.,
Inc. .................. -- -- 100 250
Oppenheimer Tower
One World Financial Cen-
ter
New York, New York 10281
Raymond James & Associ-
ates................... 250 -- -- --
880 Carillon Parkway
P.O. Box 12749
St. Petersburg, Florida
33733
U.S. Clearing Corp. .... 250 -- -- --
26 Broadway
New York, NY 10004
William R. Hough........ 250 -- -- --
100 Second Avenue
Suite 800
St. Petersburg, Florida
33701
Roosevelt & Cross,
Inc. .................. 100 -- -- 100
20 Exchange Place
New York, New York 10005
Advest Inc. ............ 100 -- -- --
One Commercial Plaza
280 Trumbull Street
Hartford, Connecticut
06103
First Miami Securities,
Inc. .................. 100 -- -- --
301 Yamato Road
Suite 2100
Boca Raton, Florida
33431
Janney Montgomery Scott
Inc. .................. -- -- 100 --
1801 Market Street
Philadelphia, Pennsylva-
nia 19103
Legg Mason Wood Walker,
Inc. .................. 100 -- -- --
111 South Calvert Street
Baltimore, Maryland
21202
Samuel A. Ramirez....... -- -- -- 100
61 Broadway
New York, New York 10008
Rauscher Pierce Refsnes,
Inc. .................. 100 -- -- --
2500 RPR Tower
Plaza of the Americas
Dallas, Texas 75201
--------- --------- --------- ---------
Total................... 10,000 3,000 3,000 3,000
========= ========= ========= =========
</TABLE>
A-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Sponsor, Trustee and Unit Holders of Tax Exempt Securities Trust,
National Trust 211, California Trust 143, New Jersey Trust 124 and New York
Trust 147:
We have audited the accompanying statements of financial condition, including
the portfolios of securities, of each of the respective trusts constituting Tax
Exempt Securities Trust, National Trust 211, California Trust 143, New Jersey
Trust 124 and New York Trust 147 as of September 7, 1995. 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
September 7, 1995 for the purchase of securities, as shown in the statements of
financial condition and portfolios of securities. An audit of a statement of
financial condition also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
statement of financial condition presentation. We believe that our audits of
the statements of financial condition provide a reasonable basis for our
opinion.
In our opinion, the statements of financial condition referred to above
present fairly, in all material respects, the financial position of each of the
respective trusts constituting Tax Exempt Securities Trust, National Trust 211,
California Trust 143, New Jersey Trust 124 and New York Trust 147 as of
September 7, 1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
September 7, 1995
A-7
<PAGE>
TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, SEPTEMBER 7, 1995
<TABLE>
<CAPTION>
TRUST PROPERTY
-------------------------------------------
NATIONAL CALIFORNIA NEW JERSEY NEW YORK
TRUST 211 TRUST 143 TRUST 124 TRUST 147
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Investment in Tax-Exempt Secu-
rities:
Bonds represented by purchase
contracts backed by
letter of credit (1)........ $9,781,341 $2,820,915 $2,947,461 $2,925,620
Accrued interest through the
Date of Deposit on underlying
bonds (1)(2).................. 136,676 26,482 52,649 31,891
Organizational costs (3)....... 20,000 6,000 6,000 6,000
---------- ---------- ---------- ----------
Total...................... $9,938,017 $2,853,397 $3,006,110 $2,963,511
========== ========== ========== ==========
<CAPTION>
LIABILITIES AND INTEREST OF UNIT HOLDERS
-------------------------------------------
<S> <C> <C> <C> <C>
Liabilities:
Accrued interest through the
Date of Deposit on
underlying bonds (1)(2)..... $ 136,676 $ 26,482 $ 52,649 $ 31,891
Accrued expenses (3)......... 20,000 6,000 6,000 6,000
---------- ---------- ---------- ----------
Interest of Unit Holders:
Units of fractional undivided
interest outstanding (Na-
tional Trust 211: 10,000;
California Trust 143: 3,000;
New Jersey Trust 124: 3,000;
New York Trust 147: 3,000)
Cost to investors (4)....... 10,263,757 2,960,043 3,092,830 3,069,912
Less--Gross underwriting
commission (5)............. 482,416 139,128 145,369 144,292
---------- ---------- ---------- ----------
Net amount applicable to in-
vestors.................... 9,781,341 2,820,915 2,947,461 2,925,620
---------- ---------- ---------- ----------
Total........................ $9,938,017 $2,853,397 $3,006,110 $2,963,511
========== ========== ========== ==========
</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 September 7, 1995, the Date of Deposit, determined by
the Evaluator on the basis set forth in Part B, "Public Offering--Offering
Price." Morgan Guaranty Trust Company of New York issued an irrevocable
letter of credit in the aggregate principal amount of $23,000,000 which was
deposited with the Trustee for the purchase of $19,000,000 principal amount
of Bonds pursuant to contracts to purchase such Bonds at the Sponsor's
aggregate cost of $18,475,337 plus $247,698 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 10,000,
3,000, 3,000 and 3,000 Units of National Trust, California 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 10,000, 3,000, 3,000 and 3,000 Units of
National Trust, California 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
NATIONAL TRUST 211--PORTFOLIO OF SECURITIES AS OF SEPTEMBER 7, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS REDEMPTION TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) PROVISIONS (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $750,000 Alaska Housing Finance AAA 6/1/02 @ 102 $759,908 6.200% $48,000
Corporation, SF 6/1/33 @ 100
Collateralized Veterans
Mortgage Program Bonds,
6.40% Due 12/1/2034
2. 125,000 Central California Joint A* 2/1/03 @ 100 101,826 6.450 6,250
Powers, California, SF 2/1/16 @ 100
Health Financing
Authority, Certificates
of Participation,
Community Hospitals of
Central California
Project, 5.00% Due
2/1/2023
3. 230,000 San Bernardino County, A- -- 200,930 6.500 12,650
California, Certificates SF 8/1/21 @ 100
of Participation,
Medical Center Financing
Project, 5.50% Due
8/1/2022
4. 750,000 Sequoia Hospital A- 8/15/03 @ 102 625,170 6.700 40,312
District, Redwood City, SF 8/15/14 @ 100
California, Revenue
Bonds, 5.375% Due
8/15/2023
5. 145,000 Palm Beach County, A+ 10/1/03 @ 102 145,000 6.300 9,135
Florida, Health SF 10/1/12 @ 100
Facilities Authority,
Hospital Revenue Bonds,
Good Samaritan Health
Systems, Inc. Project,
6.30% Due 10/1/2022
6. 410,000 Georgia Municipal A -- 388,922 5.900 22,550
Electric Authority, SF 1/1/13 @ 100
Power Revenue Bonds,
5.50% Due 1/1/2020
7. 380,000 Illinois Development A -- 384,157 6.400 24,890
Finance Authority, SF 4/1/05 @ 100
Section 8 Elderly
Housing Revenue
Refunding Bonds,
Sterling Manor Project,
6.55% Due 10/1/2009
8. 620,000 Metropolitan Pier and A+ 6/15/03 @ 102 637,980 6.100 40,300
Exposition Authority, SF 6/15/23 @ 100
Illinois, McCormick
Place Expansion Project
Bonds, 6.50% Due
6/15/2027
9. 500,000 Indiana Health Facility A 2/15/02 @ 102 508,845 6.350 33,125
Financing Authority, SF 2/15/14 @ 100
Hospital Revenue Bonds,
Floyd Memorial Hospital
Project, 6.625% Due
2/15/2022
10. 280,000 The Housing Authority of A- 5/1/05 @ 102 285,625 6.500 18,900
Radcliff, Kentucky, SF 5/1/16 @ 100
Multi-Family Housing
Revenue Bonds, Big Stone
Gap Project, 6.75% Due
5/1/2025
11. 345,000 Louisiana Housing AAA 9/1/05 @ 103 364,679 6.300 23,978
Finance Agency, Mortgage SF 3/1/26 @ 100
Revenue Bonds, GNMA
Collateralized Mortgage
Loan--St. Dominic
Assisted Care Facility,
6.95% Due 9/1/2036
12. 740,000 Massachusetts Health and A 4/1/02 @ 102 765,315 6.350 50,875
Educational Facilities SF 4/1/13 @ 100
Authority Revenue Bonds,
New England Deaconess
Hospital Issue, 6.875%
Due 4/1/2022
13. 295,000 Massachusetts Water A 12/1/01 @ 100 285,283 6.000 16,963
Resources Authority, SF 12/1/20 @ 100
General Revenue Bonds,
5.75% Due 12/1/2021
14. 280,000 New Jersey Housing and A+ 5/1/02 @ 102 297,716 6.000 19,460
Mortgage Finance Agency, SF 5/1/06 @ 100
Housing Revenue Bonds,
6.95% Due 11/1/2013
15. 155,000 North Carolina Municipal A- 1/1/03 @ 100 145,534 6.300 8,912
Power Agency, Catawba SF 1/1/13 @ 100
Electric Revenue Bonds,
5.75% Due 1/1/2015
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-9
<PAGE>
TAX EXEMPT SECURITIES TRUST
NATIONAL TRUST 211--PORTFOLIO OF SECURITIES AS OF SEPTEMBER 7, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS REDEMPTION TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) PROVISIONS (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ----------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
16. $ 750,000 North Carolina Municipal A- 1/1/96 @ 100 $ 713,168 6.400% $ 45,000
Power Agency, Catawba SF 7/1/17 @ 100
Electric Revenue Bonds,
6.00% Due 1/1/2020
17. 455,000 Cleveland-Rock Glen A* 6/1/06 @ 103 483,924 6.300 31,850
Housing Assistance SF 6/1/06 @ 100
Corporation, Ohio.
Multifamily Housing
Revenue and Revenue
Refunding Bonds,
Ambleside Apartments-
Section 8 Assisted
Projects, 7.00% Due
6/1/2018
18. 745,000 The Hospitals and Higher A- 11/15/03 @ 102 757,315 6.400 49,356
Education Facilities SF 11/15/09 @ 100
Authority of
Philadelphia,
Pennsylvania, Hospital
Revenue Bonds, Temple
University Hospital,
6.625% Due 11/15/2023
19. 250,000 Rhode Island Health and A 4/1/03 @ 102 253,520 6.400 16,500
Educational Building SF 4/1/14 @ 100
Corporation Revenue
Bonds, The Miriam
Hospital Issue, 6.60%
Due 4/1/2019
20. 755,000 South Carolina Public A+ 1/1/03 @ 102 657,688 6.000 38,694
Service Authority SF 1/1/26 @ 100
Refunding Revenue Bonds,
5.125% Due 1/1/2032
21. 445,000 Tennessee Housing A+ 7/1/03 @ 102 435,530 6.100 26,477
Development Agency, SF 1/1/19 @ 100
Mortgage Finance Program
Bonds, 5.95% Due
7/1/2028
22. 205,000 The Industrial A3* 9/1/04 @ 102 209,842 6.200 13,325
Development Board of
Maury County, Tennessee,
Pollution Control
Refunding Revenue Bonds,
Saturn Corporation
Project, 6.50% Due
9/1/2024
23. 390,000 Brazos County, Texas, A- 1/1/04 @ 102 373,464 6.350 23,400
Health Facilities SF 1/1/14 @ 100
Development Corporation,
Franciscan Services
Corporation Revenue
Refunding Bonds, St.
Joseph Hospital and
Health Center of Bryan,
Texas, 6.00% Due
1/1/2019
----------- ---------- --------
$10,000,000 $9,781,341 $620,902
=========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-10
<PAGE>
TAX EXEMPT SECURITIES TRUST
CALIFORNIA TRUST 143--PORTFOLIO OF SECURITIES AS OF SEPTEMBER 7, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS REDEMPTION TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) PROVISIONS (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 500,000 California Health A 5/1/05 @ 102 $ 504,005 6.400% $ 32,500
Facilities Financing SF 5/1/11 @ 100
Authority, Insured
Revenue Bonds,
Exceptional Children's
Foundation, 6.50% Due
5/1/2020
2. 250,000 State Public Works Board A- 10/1/04 @ 102 245,000 6.180 15,000
of the State of SF 10/1/10 @ 100
California, Lease
Revenue Bonds,
California Community
Colleges, Various
Community College
Projects, 6.00% Due
10/1/2014
3. 250,000 Town of Apple Valley, A 9/1/05 @ 102 250,000 6.375 15,937
San Bernardino County,
California, Certificates
of Participation, 6.375%
Due 9/1/2015
4. 125,000 Central California Joint A* 2/1/03 @ 100 101,826 6.450 6,250
Powers, California, SF 2/1/16 @ 100
Health Financing
Authority, Certificates
of Participation,
Community Hospitals of
Central California
Project, 5.00% Due
2/1/2023
5. 500,000 Emeryville Public A 9/1/05 @ 102 493,290 6.300 31,000
Financing Authority SF 9/1/16 @ 100
Revenue Bonds,
California, Housing
Increment Loan, 6.20%
Due 9/1/2025
6. 500,000 City of Oceanside, A* 4/1/03 @ 102 482,410 6.300 30,000
California, Refunding SF 4/1/13 @ 100
Certificates of
Participation, Oceanside
Building Authority,
6.00% Due 4/1/2017
7. 375,000 San Bernardino County, A- SF 8/1/21 @ 100 327,604 6.500 20,625
California, Certificates
of Participation,
Medical Center Financing
Project, 5.50% Due
8/1/2022
8. 500,000 Sequoia Hospital A- 8/15/03 @ 102 416,780 6.700 26,875
District, Redwood City, SF 8/15/14 @ 100
California, Revenue
Bonds, 5.375% Due
8/15/2023
---------- ---------- --------
$3,000,000 $2,820,915 $178,187
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-11
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW JERSEY TRUST 124--PORTFOLIO OF SECURITIES AS OF SEPTEMBER 7, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 500,000 New Jersey Economic A+ 9/15/02 @ 102 $ 500,000 6.000% $ 30,000
Development Authority, SF 3/15/15 @ 100
Economic Recovery Fund
Bonds, State Contract,
6.00% Due 3/15/2021
2. 140,000 Rutgers, The State AA 5/1/02 @ 100 140,000 5.749 8,050
University, New Jersey, SF 5/1/14 @ 100
Revenue Refunding Bonds,
5.75% Due 5/1/2018
3. 470,000 New Jersey Housing and A+ 5/1/02 @ 102 499,737 6.000 32,665
Mortgage Finance Agency, SF 5/1/06 @ 100
Housing Revenue Bonds,
6.95% Due 11/1/2013
4. 500,000 New Jersey Housing and A+ 11/1/02 @ 102 524,315 6.000 33,500
Mortgage Finance Agency, SF 5/1/15 @ 100
Housing Revenue
Refunding Bonds, 6.70%
Due 11/1/2028
5. 140,000 New Jersey Sports and Aa* 1/1/03 @ 102 127,471 5.850 7,280
Exposition Authority, SF 1/1/21 @ 100
Sports Complex Refunding
Revenue Bonds, 5.20% Due
1/1/2024
6. 250,000 The Pollution Control AAA 11/1/03 @ 102 238,578 5.850 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
7. 500,000 The Delaware River and AAA 1/1/04 @ 102 430,465 5.750 23,750
Bay Authority Revenue SF 1/1/18 @ 100
Bonds, MBIA Insured,
4.75% Due 1/1/2024
8. 250,000 Puerto Rico Electric A- 7/1/05 @ 102 232,717 6.000 13,750
Power Authority, Power SF 7/1/22 @ 100
Revenue Bonds, 5.50% Due
7/1/2025
9. 250,000 Puerto Rico Industrial, AAA 8/1/05 @ 101.50 254,178 6.050 15,625
Tourist, Educational,
Medical and
Environmental, Control
Facilities Financing
Authority, Hospital
Revenue Refunding 6.25%
Due 8/1/2032
---------- ---------- --------
$3,000,000 $2,947,461 $178,495
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-12
<PAGE>
TAX EXEMPT SECURITIES TRUST
NEW YORK TRUST 147--PORTFOLIO OF SECURITIES AS OF SEPTEMBER 7, 1995
<TABLE>
<CAPTION>
COST OF YIELD ON ANNUAL
REDEMPTION SECURITIES DATE OF INTEREST
AGGREGATE SECURITIES REPRESENTED RATINGS PROVISIONS TO TRUST DEPOSIT INCOME
PRINCIPAL BY PURCHASE CONTRACTS (1) (2) (3)(4) (4) TO TRUST
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 250,000 New York City, General A-** 8/1/05 @ 101 $ 254,615 6.400% $ 16,562
Obligation Bonds, 6.625%
Due 8/1/2025
2. 500,000 New York City Housing AA 5/1/03 @ 102 482,710 6.100 29,250
Development Corporation, SF 5/1/14 @ 100
Multi-Family Housing
Revenue Bonds, 5.85% Due
5/1/2026
3. 250,000 New York City, Municipal A- 6/15/02 @ 101 255,438 6.050 15,937
Water Finance Authority, SF 6/15/21 @ 100
Water and Sewer System
Revenue Bonds, 6.375%
Due 6/15/2022
4. 500,000 New York State Dormitory A** 5/15/04 @ 102 453,440 6.100 27,000
Authority, State SF 5/15/14 @ 100
University Educational
Facilities Revenue
Bonds, 5.40% Due
5/15/2023
5. 200,000 Dormitory Authority of A** 7/1/04 @ 102 188,408 6.150 11,400
the State of New York SF 7/1/15 @ 100
Revenue Bonds, Upstate
Community Colleges,
5.70% Due 7/1/2021
6. 485,000 Dormitory Authority of AA 8/1/05 @ 102 492,027 6.200 30,919
the State of New York,
St. Lukes Home
Residential Health Care
Facility, Inc., FHA-
Insured Mortgage Revenue
Bonds, 6.375% Due
8/1/2035
7. 100,000 New York State Housing Aa* 8/15/02 @ 102 100,000 6.250 6,250
Finance Agency, SF 8/15/13 @ 100
Multi-Family Housing
Revenue Bonds, Secured
Mortgage Program, 6.25%
Due 8/15/2023
8. 250,000 New York State Medical AAA 8/15/04 @ 102 259,908 6.000 16,250
Care Facilities Finance SF 2/15/20 @ 100
Agency, Mental Health
Services Facilities
Improvement Revenue
Bonds, Capital Guaranty
Insured, 6.50% Due
8/15/2024
9. 250,000 New York State Urban A** 1/1/04 @ 102 222,750 6.100 13,125
Development Corporation, SF 1/1/17 @ 100
Correctional Capital
Facilities Revenue
Refunding Bonds, 5.25%
Due 1/1/2021
10. 215,000 Puerto Rico Electric A- 7/1/05 @ 102 216,324 6.050 13,169
Power Authority, Power SF 7/1/16 @ 100
Revenue Bonds, 6.125%
Due 7/1/2021
---------- ---------- --------
$3,000,000 $2,925,620 $179,862
========== ========== ========
</TABLE>
The Notes following the Portfolios are an integral part of each Portfolio of
Securities.
A-13
<PAGE>
NOTES TO PORTFOLIOS OF SECURITIES
(1)For a description of the meaning of the applicable rating symbols as
published by Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., Moody's Investors Service(*) and Fitch Investor Services, Inc.(**),
see Part B, "Bond Ratings".
(2) There is shown under this heading the year in which each issue of Bonds
initially is redeemable and the redemption price for that year; unless
otherwise indicated, each issue continues to be redeemable at declining
prices thereafter, but not below par. "SF" indicates a sinking fund has been
or will be established with respect to an issue of Bonds. The prices at
which Bonds may be redeemed or called prior to maturity may or may not
include a premium and, in certain cases, may be less than the cost of the
Bonds to a Trust. Certain Bonds in a Portfolio, including Bonds listed as
not being subject to redemption provisions, may be redeemed in whole or in
part other than by operation of the stated redemption or sinking fund
provision under certain unusual or extraordinary circumstances specified in
the instruments setting forth the terms and provisions of such Bonds. For
example, see discussion of obligations of housing authorities in Part B,
"Tax Exempt Securities Trust--Portfolio."
(3) Contracts to purchase Bonds were entered into during the period October 15,
1993, through September 7, 1995, with the final settlement date on September
28, 1995. The Profit to the Sponsor on Deposit totals $168,620, $44,129,
$40,330 and $51,113 for the National Trust, California 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 National Trust,
California Trust, New Jersey Trust and New York Trust on September 7, 1995,
was $9,741,341, $2,808,915, $2,935,461 and $2,909,620, respectively.
A-14
<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
(National Association), as Trustee, and J.J. Kenny Co., Inc., as Evaluator.
Each Trust containing Bonds of a State for which such Trust is named (a "State
Trust") and each National Trust, Selected Term Trust, Long-Intermediate Term
Trust, Intermediate Term Trust, Short-Intermediate Term Trust and Short Term
Trust are referred to herein as the "Trust" or "Trusts," unless the context
requires otherwise. On the Date of Deposit, the Sponsor deposited contracts and
funds (represented by a certified check or checks and/or an irrevocable letter
or letters of credit, issued by a major commercial bank) for the purchase of
certain interest-bearing obligations (the "Bonds") and/or Units of preceding
Series of Tax Exempt Securities Trust (such Bonds and Units of preceding Series
of Tax Exempt Securities Trust, if any, (the "Deposited Units") being referred
to herein collectively as the "Securities"). The Trustee thereafter delivered
to the Sponsor registered certificates of beneficial interest (the
"Certificates") representing the units (the "Units") comprising the entire
ownership of each Trust, which Units are being offered hereby. References to
multiple Trusts in Part B herein should be read as references to a single Trust
if Part A indicates the creation of only one Trust.
Notwithstanding the availability of the above-mentioned certified check or
checks and/or irrevocable letter or letters of credit, it is expected that the
Sponsor will pay for the Bonds as the contracts for their purchase become due.
A substantial portion of such contracts have not become due by the date of this
Prospectus. To the extent Units are sold prior to the settlement of such
contracts, the Sponsor will receive the purchase price on such Units prior to
the time at which they pay for Bonds pursuant to such contracts and have the
use of such funds during this period.
OBJECTIVES
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 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." 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 Bonds fails and Replacement Bonds
are not acquired, the Trustee will, not later than the second monthly
Distribution Date, distribute to Unit holders the funds attributable to the
failed contract. The Sponsor will, in such a case, refund the sales charge
applicable to the failed contract. If less than all the funds attributable to a
failed contract are applied to purchase Replacement Bonds, the remaining moneys
will be distributed to Unit holders not later than the second monthly
Distribution Date. Moreover, the failed contract will reduce the Estimated Net
Annual Income per Unit, and may lower the Estimated Current Return and
Estimated Long-Term Return.
RISK FACTORS
Certain Bonds in a Trust may have been purchased by the Sponsor on a "when,
as and if issued" basis; that is, they had not yet been issued by their
governmental entity on the Date of Deposit (although such governmental entity
had committed to issue such Bonds). Contracts relating to such "when, as and if
issued" Bonds are not expected to be settled by the first settlement date for
Units. In the case of these and/or certain other Bonds, the delivery of the
Bonds may be delayed ("delayed delivery") or may not occur. Unit holders who
purchased their Units of a Trust prior to the date such Bonds are actually
delivered to the Trustee may have to make a downward adjustment in the tax
basis of their Units for interest accruing on such "when, as and if issued" or
"delayed delivery" Bonds during the interval between their purchase of Units
and delivery of such Bonds, since the Trust and the Unit holders will not be
reimbursing the Sponsor for interest accruing on such "when, as and if issued"
or "delayed delivery" Bonds during the period between the settlement date for
the Units and the delivery of such Bonds into the Trust. (See "Taxes.") Such
adjustment has been taken into account in computing the Estimated Current
Return and Estimated Long-Term Return set forth herein, which is slightly lower
than Unit holders may receive after the first year. (See Part A, "Summary of
Essential Information.") To the extent that the delivery of such Bonds is
delayed beyond their respective expected delivery dates, the Estimated Current
Return and Estimated Long-Term Return for the first year may be lower than
indicated in the "Summary of Essential Information" in Part A.
Most of the Bonds in the Portfolio of a Trust are subject to redemption prior
to their stated maturity date pursuant to sinking fund or call provisions. (See
Part A--"Portfolio Summary as of Date of Deposit" for information relating to
the particular Trust described therein.) In general, a call or redemption
provision is more likely to be exercised when the offering price valuation of a
bond is higher than its call or redemption price, as it might be in periods of
declining interest rates, than when such price valuation is less than the
bond's call or redemption price. To the extent that a Bond was deposited in a
Trust at a price higher than the price at which it is redeemable, redemption
will result in a loss of capital when compared with the original public
offering price of the Units. Conversely, to the extent that a Bond was acquired
at a price lower than the redemption price, redemption will result in an
increase in capital when compared with the original public offering price of
the Units. Monthly distributions will generally be reduced by the amount of the
income which would otherwise have been paid with respect to redeemed bonds. The
Estimated Current Return and Estimated Long-Term Return of the Units may be
affected by such redemptions. Each Portfolio of Securities in Part A contains a
listing of the sinking fund and call provisions, if any, with respect to each
of the Bonds in a Trust. Because certain of the Bonds may from time to time
under certain circumstances be sold or redeemed or will mature in accordance
with their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that a Trust will
retain for any length of time its present size and composition. NEITHER THE
SPONSOR NOR THE TRUSTEE SHALL BE LIABLE IN ANY WAY FOR ANY DEFAULT, FAILURE OR
DEFECT IN ANY BOND.
The Portfolio of the Trust may consist of some Bonds whose current market
values were below face value on the Date of Deposit. A primary reason for the
market value of such Bonds being less than face value at maturity is that the
interest coupons of such Bonds are at lower rates than the current market
interest rate for comparably rated Bonds, even though at the time of the
issuance of such Bonds
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 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 is currently engaged in a program of intensive
audits of certain large tax-exempt hospital and health care facility
organizations. Although these audits have not yet been completed, it has been
reported that the tax-exempt status of some of these organizations may be
revoked. At this time, it is uncertain whether any of the hospital and health
care facility bonds held by the Trust will be affected by such audit
proceedings.
SINGLE FAMILY AND MULTI-FAMILY HOUSING BONDS. Multi-family housing revenue
bonds and single family mortgage revenue bonds are state and local housing
issues that have been issued to provide financing for various housing projects.
Multi-family housing revenue bonds are payable primarily from the revenues
derived from mortgage loans to housing projects for low to moderate income
families. Single-family mortgage revenue bonds are issued for the purpose of
acquiring from originating financial institutions notes secured by mortgages on
residences.
Housing obligations are not general obligations of the issuer although
certain obligations may be supported to some degree by Federal, state or local
housing subsidy programs. Budgetary constraints experienced by these programs
as well as the failure by a state or local housing issuer to satisfy the
qualifications required for coverage under these programs or any legal or
administrative determinations that the coverage of these programs is not
available to a housing issuer, probably will result in a decrease or
elimination of subsidies available for payment of amounts due on the issuer's
obligations. The ability of housing issuers to make debt service payments on
their obligations will also be affected by various economic and non-economic
developments including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income in multi-family
projects, the rate of default on mortgage loans underlying single family issues
and the ability of mortgage insurers to pay claims, employment and income
conditions prevailing in local markets, increases in construction costs, taxes,
utility costs and other operating expenses, the managerial ability of project
managers, changes in laws and governmental regulations and economic trends
generally in the localities in which the projects are situated. Occupancy of
multi-family housing projects may also be adversely affected by high rent
levels and income limitations imposed under Federal, state or local programs.
B-4
<PAGE>
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.
B-5
<PAGE>
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,
makes it mandatory for a utility to permit non-utility generators of
electricity access to its transmission system for wholesale customers, thereby
increasing competition for electric utilities. NEPA also mandated demand-side
management policies to be considered by utilities. NEPA prohibits the Federal
Energy Regulatory Commission from mandating electric utilities to engage in
retail wheeling, which is competition among suppliers of electric generation to
provide electricity to retail customers (particularly industrial retail
customers) of a utility. However, under NEPA, a state can mandate retail
wheeling under certain conditions.
There is concern by the public, the scientific community, and the U.S.
Congress regarding environmental damage resulting from the use of fossil fuels.
Congressional support for the increased regulation of air, water, and soil
contaminants is building and there are a number of pending or recently enacted
legislative proposals which may affect the electric utility industry. In
particular, on November 15, 1990, legislation was signed into law that
substantially revises the Clean Air Act (the "1990 Amendments"). The 1990
Amendments seek to improve the ambient air quality throughout the United States
by the year 2000. A main feature of the 1990 Amendments is the reduction of
sulphur dioxide and nitrogen oxide emissions caused by electric utility power
plants, particularly those fueled by coal. Under the 1990 Amendments the U.S.
Environmental Protection Agency ("EPA") must develop limits for nitrogen oxide
emissions by 1993. The sulphur dioxide reduction will be achieved in two
phases. Phase I addresses specific generating units named in the 1990
Amendments. In Phase II the total U.S. emissions will be capped at 8.9 million
tons by the year 2000. The 1990 Amendments contain provisions for allocating
allowances to power plants based on historical or calculated levels. An
allowance is defined as the authorization to emit one ton of sulphur dioxide.
The 1990 Amendments also provide for possible further regulation of toxic air
emissions from electric generating units pending the results of several federal
government studies to be conducted over the next three to four years with
respect to anticipated hazards to public health, available corrective
technologies, and mercury toxicity.
Electric utilities which own or operate nuclear power plants are exposed to
risks inherent in the nuclear industry. These risks include exposure to new
requirements resulting from extensive federal and state regulatory oversight,
public controversy, decommissioning costs, and spent fuel and radioactive waste
disposal issues. While nuclear power construction risks are no longer of
paramount concern, the emerging issue is radioactive waste disposal. In
addition, nuclear plants typically require substantial capital additions and
modifications throughout their operating lives to meet safety, environmental,
operational and regulatory requirements and to replace and upgrade various
plant systems. The high degree of regulatory monitoring and controls imposed on
nuclear plants could cause a plant to be out of service or on limited service
for long periods. When a nuclear facility owned by an investor-owned utility or
a state or local municipality is out of service or operating on a limited
service basis, the utility operator or its owners may be liable for the
recovery of replacement power costs. Risks of substantial liability also arise
from the operation of nuclear facilities and from the use, handling, and
possible radioactive emissions associated with nuclear fuel. Insurance may not
cover all types or amounts of loss which may be experienced in connection with
the ownership and operation of a nuclear plant and severe financial
consequences could result from a significant accident or occurrence. The
Nuclear Regulatory Commission has promulgated regulations mandating the
establishment of funded reserves to assure financial capability for the
eventual decommissioning of licensed nuclear facilities. These funds are to be
accrued from revenues in amounts currently estimated to be sufficient to pay
for decommissioning costs.
The ability of state and local joint action power agencies to make payments
on bonds they have issued is dependent in large part on payments made to them
pursuant to power supply or similar agreements. Courts in Washington, Oregon
and Idaho have held that certain agreements between the Washington Public Power
Supply System ("WPPSS") and the WPPSS participants are unenforceable because
the participants did not have the authority to enter into the agreements. While
these decisions are not specifically applicable to agreements entered into by
public entities in other states, they may cause a reexamination of the legal
structure and economic viability of certain projects financed by joint power
agencies, which might exacerbate some of the problems referred to above and
possibly lead to legal proceedings questioning the enforceability of agreements
upon which payment of these bonds may depend.
B-6
<PAGE>
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
B-7
<PAGE>
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 are experiencing severe financial difficulties.
Several airlines including America West Airlines have sought protection from
their creditors under Chapter 11 of the Bankruptcy Code. In addition, other
airlines such as Midway Airlines Inc., Eastern Airlines, Inc. and Pan American
Corporation have been liquidated. However, Continental Airlines and Trans World
Airlines have emerged from bankruptcy. The Sponsor cannot predict what effect
these industry conditions may have on airport revenues which are dependent for
payment on the financial condition of the airlines and their usage of the
particular airport facility. Furthermore, proposed Legislation would provide
the U.S. Secretary of Transportation with the temporary authority to freeze
airport fees upon the occurrence of disputes between a particular airport
facility and the airlines utilizing that facility.
Similarly, payment on bonds related to other facilities is dependent on
revenues from the projects, such as use fees from ports, tolls on turnpikes and
bridges and rents from buildings. Therefore, payment may be adversely affected
by reduction in revenues due to such factors and increased cost of maintenance
or decreased use of a facility, lower cost of alternative modes of
transportation or scarcity of fuel and reduction or loss of rents.
SPECIAL TAX BONDS. Special tax bonds are payable from and secured by the
revenues derived by a municipality from a particular tax such as a tax on the
rental of a hotel room, on the purchase of food and beverages, on the rental of
automobiles or on the consumption of liquor. Special tax bonds are not secured
by the general tax revenues of the municipality, and they do not represent
general obligations of the municipality. Therefore, payment on special tax
bonds may be adversely affected by a reduction in revenues realized from the
underlying special tax due to a general decline in the local economy or
population or due to a decline in the consumption, use or cost of the goods and
services that are subject to taxation. Also, should spending on the particular
goods or services that are subject to the special tax decline, the municipality
may be under no obligation to increase the rate of the special tax to ensure
that sufficient revenues are raised from the shrinking taxable base.
TAX ALLOCATION BONDS. Tax allocation bonds are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds are located ("project
areas"). Such payments are expected to be made from projected increases in tax
revenues derived from higher assessed values of property resulting from
development in the particular project area and not from an increase in tax
rates. Special risk considerations include: reduction of, or a less than
anticipated increase in, taxable values of property in the project area, caused
either by economic factors beyond the Issuer's control (such as a relocation
out of the project area by one or more major property owners) or by destruction
of property due to natural or other disasters; successful appeals by property
owners of assessed valuations; substantial delinquencies in the payment of
property taxes; or imposition of any constitutional or legislative property tax
rate decrease.
TRANSIT AUTHORITY BONDS. Mass transit is generally not self-supporting from
fare revenues. Therefore, additional financial resources must be made available
to ensure operation of mass transit systems as well as the timely payment of
debt service. Often such financial resources include Federal and state
subsidies, lease rentals paid by funds of the state or local government or a
pledge of a special tax such as a sales tax or a property tax. If fare revenues
or the additional financial resources do not increase appropriately to pay for
rising operating expenses, the ability of the issuer to adequately service the
debt may be adversely affected.
B-8
<PAGE>
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. The Portfolio may contain bonds of issuers which will be
affected by general economic conditions in Puerto Rico. Puerto Rico's
unemployment rate remains significantly higher than the U.S. unemployment rate.
Furthermore, the economy is largely dependent for its development upon U.S.
policies and programs that are being reviewed and may be eliminated.
The Puerto Rican economy is affected by a number of Commonwealth and Federal
investment incentive programs. For example, Section 936 of the Internal Revenue
Code (the "Code") provides for a credit against Federal income taxes for U.S.
companies operating on the island if certain requirements are met. The Omnibus
Budget Reconciliation Act of 1993 imposes limits on such credit, effective for
tax years beginning after 1993. In addition, from time to time proposals are
introduced in Congress which, if enacted into law, would eliminate some or all
of the benefits of Section 936. Although no assessment can be made at this time
of the precise effect of such limitation, it is expected that the limitation of
Section 936 credits would have a negative impact on Puerto Rico's economy.
Aid for Puerto Rico's economy has traditionally depended heavily on Federal
programs, and current Federal budgetary policies suggest that an expansion of
aid to Puerto Rico is unlikely. An adverse effect on the Puerto Rican economy
could result from other U.S. policies, including a reduction of tax benefits
for distilled products, further reduction in transfer payment programs such as
food stamps, curtailment of military spending and policies which could lead to
a stronger dollar.
In a plebiscite held in November, 1993, the Puerto Rican electorate chose to
continue Puerto Rico's Commonwealth status. Previously proposed legislation,
which was not enacted, would have preserved the federal tax exempt status of
the outstanding debts of Puerto Rico and its public corporations regardless of
the outcome of the referendum, to the extent that similar obligations issued by
states are so treated and subject to the provisions of the Code currently in
effect. There can be no assurance that any pending or future legislation
finally enacted will include the same or similar protection against loss of tax
exemption. The November 1993 plebiscite can be expected to have both direct and
indirect consequences on such matters as the basic characteristics of future
Puerto Rico debt obligations, the markets for these obligations, and the types,
levels and quality of revenue sources pledged for the payment of existing and
future debt obligations. Such possible consequences include, without
limitation, legislative proposals seeking restoration of the status of Section
936 benefits otherwise subject to the limitations discussed above. However, no
assessment can be made at this time of the economic and other effects of a
change in federal laws affecting Puerto Rico as a result of the November 1993
plebiscite.
INSURANCE. Certain Bonds (the "Insured Bonds") may be insured or guaranteed
by AMBAC Indemnity Corporation ("AMBAC"), Asset Guaranty Reinsurance Company
("Asset Guaranty"), Capital Guaranty Insurance Company ("CGIC"), Capital
Markets Assurance Corp. ("CAPMAC"), Connie Lee Insurance Company ("Connie
Lee"), Financial Guaranty Insurance Company "Financial Guaranty"), Financial
Security Assurance Inc. ("FSA"), or 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 company, regulated by the
Insurance Department of the State of Wisconsin, and licensed to do business in
various states, with admitted assets of approximately $2,204,000,000 and
policyholders' surplus of approximately $792,000,000 as of March 31, 1995.
AMBAC is a wholly-owned subsidiary of AMBAC Inc., a financial holding company
which is publicly owned following a complete divestiture by Citibank during the
first quarter of 1992.
Asset Guaranty is a New York State insurance company licensed to write
financial guarantee, credit, residual value and surety insurance. Asset
Guaranty commenced operations in mid-1988 by providing reinsurance to several
major monoline insurers. Asset Guaranty also issued limited amounts of primary
financial guaranty insurance, but not in direct competition with the primary
mono-line companies for which it acts as a reinsurer. The parent holding
company of Asset Guaranty, Asset Guarantee Inc. (AGI), merged with
B-9
<PAGE>
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. After an initial public offering completed in February
1992 and the sale by Merrill Lynch & Co. of its stake, EFSG is 49.8%-owned by
the public, 29.9% by US West Financial Services, 14.1% by Manufacturers Life
Insurance Co. and 6.2% by senior management. Both ERC and Asset Guaranty are
rated "AAA" for claims paying ability by Duff & Phelps. ERC is rated triple-A
for claims-paying ability by both S&P and Moody's. Asset Guaranty received a
"AA" claims-paying-ability rating from S&P during August 1993, but remains
unrated by Moody's. As of March 31, 1995 Asset Guaranty had admitted assets of
approximately $166,000,000 and policyholders' surplus of approximately
$77,000,000.
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.
CGIC, a monoline bond insuror headquartered in San Francisco, California, was
established in November 1986 to assume the financial guaranty business of
United States Fidelity and Guaranty Company ("USF&G"). It is a wholly-owned
subsidiary of Capital Guaranty Corporation ("CGC") whose stock is owned by:
Constellation Investments, Inc., an affiliate of Baltimore Gas & Electric,
Fleet/Norstar Financial Group, Inc., Safeco Corporation, Sibag Finance
Corporation, an affiliate of Siemens AG, and USF&G, the 8th largest
property/casualty company in the U.S. as measured by net premiums written, and
CGC management. As of March 31, 1995, CGIC had total admitted assets of
approximately $309,000,000 and policyholders' surplus of approximately
$171,000,000.
Connie Lee is a wholly owned subsidiary of College Construction Loan
Insurance Association ("CCLIA"), a government-sponsored enterprise established
by Congress to provide American academic institutions with greater access to
low-cost capital through enhancement. Connie Lee, the operating insurance
company, was incorporated in 1987 and began business as a reinsurer of tax-
exempt bonds of colleges, universities, and teaching hospitals with a
concentration on the hospital sector. During the fourth quarter of 1991 Connie
Lee began underwriting primary bond insurance which will focus largely on the
college and university sector. CCLIA's founding shareholders are the U.S.
Department of Education, which owns 36% of CCLIA, and the Student Loan
Marketing Association ("Sallie Mae"), which owns 14%. The other principal
owners are: Pennsylvania Public School Employees' Retirement System,
Metropolitan Life Insurance Company, Kemper Financial Services, Johnson family
funds and trusts, Northwestern University, Rockefeller & Co., Inc. administered
trusts and funds, and Stanford University. Connie Lee is domiciled in the state
of Wisconsin and has licenses to do business in 47 states and the District of
Columbia. As of March 31, 1995, its total admitted assets were approximately
$195,000,000 and policyholders' surplus was approximately $108,000,000.
Financial Guaranty, a New York stock insurance company, is a wholly-owned
subsidiary of FGIC Corporation which is wholly-owned by General Electric
Capital Corporation. The investors in the FGIC Corporation are not obligated to
pay the debts of or the claims against Financial Guaranty. Financial Guaranty
commenced its business of providing insurance and financial guarantees for a
variety of investment instruments in January 1984 and is currently authorized
to provide insurance in 49 states and the District of Columbia. It files
reports with state regulatory agencies and is subject to audit and review by
those authorities. As of March 31, 1995, its total admitted assets were
approximately $2,172,000,000 and its policyholders' surplus was approximately
$963,000,000.
FSA is a monoline property and casualty insurance company incorporated in New
York in 1984. It is a wholly-owned subsidiary of Financial Security Assurance
Holdings Ltd., which was acquired in December 1989 by US West, Inc., the
regional Bell Telephone Company serving the Rocky Mountain and Pacific
Northwestern states. U.S. West is currently seeking to sell FSA. FSA is
licensed to engage in the surety business in 42 states and the District of
Columbia. FSA is engaged exclusively in the business of writing financial
guaranty insurance on both tax-exempt and non-municipal securities. As of March
31, 1995, FSA had policyholders' surplus of approximately $341,000,000 and
total admitted assets of approximately $806,000,000.
MBIA is the principal operating subsidiary of MBIA Inc. The principal
shareholders of MBIA Inc. were originally Aetna Casualty and Surety Company,
The Fund American Companies, Inc., subsidiaries of CIGNA Corporation and Credit
Local de France, CAECL, S.A. These principal shareholders now own approximately
13% of the outstanding common stock of MBIA Inc., following a series of four
public equity offerings over a five-year period. As of March 31, 1995, MBIA had
admitted assets of approximately $3,504,000,000 and policyholders' surplus of
approximately $1,132,000,000.
Insurance companies are subject to regulation and supervision in the
jurisdictions in which they do business under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. This regulation, supervision and
B-10
<PAGE>
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.
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
B-11
<PAGE>
(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 Davis Polk & Wardwell, special counsel for the Sponsor,
under existing law:
The Trusts are not associations taxable as corporations for Federal
income tax purposes, and income received by the Trusts will be treated as
the income of the Unit holders ("Holders") in the manner set forth below.
Each Holder of Units of a Trust will be considered the owner of a pro
rata portion of each Bond in the Trust under the grantor trust rules of
Sections 671-679 of the Internal Revenue Code of 1986, as amended (the
"Code"). In order to determine the face amount of a Holder's pro rata
portion of each Bond on the Date of Deposit, see "Aggregate Principal"
under "Portfolio of Securities". The total cost to a Holder of his Units,
including sales charges, is allocated to his pro rata portion of each Bond,
in proportion to the fair market values thereof on the date the Holder
purchases his Units, in order to determine his tax cost for his pro rata
portion of each Bond. In order for a Holder who purchases his Units on the
Date of Deposit to determine the fair market value of his pro rata portion
of each Bond on such date, see "Cost of Securities to Trust" under
"Portfolio of Securities".
Each Holder of Units of a Trust will be considered to have received the
interest on his pro rata portion of each Bond when interest on the Bond is
received by the Trust. In the opinion of bond counsel (delivered on the
date of issuance of each Bond), such interest will be excludable from gross
income for regular Federal income tax purposes (except in certain limited
circumstances referred to below). Amounts received by a Trust pursuant to a
bank letter of credit, guarantee or insurance policy with respect to
payments of principal, premium or interest on a Bond in the Trust will be
treated for Federal income tax purposes in the same manner as if such
amounts were paid by the issuer of the Bond.
The Trusts may contain Bonds which were originally issued at a discount
("original issue discount"). The following principles will apply to each
Holder's pro rata portion of any Bond originally issued at a discount. In
general, original issue discount is defined as the difference between the
price at which a debt obligation was issued and its stated redemption price
at maturity. Original issue discount on a tax-exempt obligation issued
after September 3, 1982, is deemed to accrue as tax-exempt interest over
the life of the obligation under a formula based on the compounding of
interest. Original issue discount on a tax-exempt obligation issued before
July 2, 1982 is deemed to accrue as tax-exempt interest ratably over the
life of the obligation. Original issue discount on any tax-exempt
obligation issued during the period beginning July 2, 1982 and ending
September 3, 1982 is also deemed to accrue as tax-exempt interest over the
life of the obligation, although it is not clear whether such accrual is
ratable or is determined under a formula based on the compounding of
interest. If a Holder's tax cost for his pro rata portion of a Bond issued
with original issue discount is greater than its "adjusted issue price" but
less than its stated redemption price at maturity (as may be adjusted for
certain payments), the Holder will be considered to have purchased his pro
rata portion of the Bond at an "acquisition premium." A
B-12
<PAGE>
Holder's adjusted tax basis for his pro rata portion of a Bond issued with
original issue discount will include original issue discount accrued during
the period such Holder held his Units. Such increases to the Holder's tax
basis in his pro rata portion of the Bond resulting from the accrual of
original issue discount, however, will be reduced by the amortization of
any such acquisition premium.
If a Holder's tax basis for his pro rata portion of a Bond in the
Holder's Trust exceeds the redemption price at maturity thereof (subject to
certain adjustments), the Holder will be considered to have purchased his
pro rata portion of the Bond with "amortizable bond premium". The Holder is
required to amortize such bond premium over the term of the Bond. Such
amortization is only a reduction of basis for his pro rata portion of the
Bond and does not result in any deduction against the Holder's income.
Therefore, under some circumstances, a Holder may recognize taxable gain
when his pro rata portion of a Bond is disposed of for an amount equal to
or less than his original tax basis therefor.
A Holder will recognize taxable gain or loss when all or part of his pro
rata portion of a Bond in his Trust is disposed of by the Trust for an
amount greater or less than his adjusted tax basis. Any such taxable gain
or loss will be capital gain or loss, except that any gain from the
disposition of a Holder's pro rata portion of a Bond acquired by the Holder
at a "market discount" (i.e., where the Holder's original basis for his pro
rata portion of the Bond (plus any original issue discount which will
accrue thereon until its maturity) is less than its stated redemption price
at maturity) would be treated as ordinary income to the extent the gain
does not exceed the accrued market discount. Capital gains are generally
taxed at the same rate as ordinary income. However, the excess of net long-
term capital gains over net short-term capital losses may be taxed at a
lower rate than ordinary income for certain noncorporate taxpayers. A
capital gain or loss is long-term if the asset is held for more than one
year and short-term if held for one year or less. The deduction of capital
losses is subject to limitations. A Holder will also be considered to have
disposed of all or part of his pro rata portion of each Bond when he sells
or redeems all or some of his Units.
Under 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 taxes. Depending on
their state of residence, Holders may be subject to state and local
taxation and should consult their own tax advisers in this regard.
* * * * *
Interest on certain tax-exempt bonds issued after August 7, 1986 will be a
preference item for purposes of the alternative minimum tax ("AMT"). The
Sponsor believes that interest (including any original issue discount) on the
Bonds should not be subject to the AMT for individuals or corporations under
this rule. A corporate Holder should be aware, however, that the accrual or
receipt of tax-exempt interest not subject to the AMT may give rise to an
alternative minimum tax liability (or increase an existing liability) because
the interest income will be included in the corporation's "adjusted current
earnings" for purposes of the adjustment to alternative minimum taxable income
required by Section 56(g) of the Code and will be taken into account for
purposes of the environmental tax on corporations under Section 59A of the
Code, which is based on an alternative minimum taxable income.
In addition, interest on the Bonds must be taken into consideration in
computing the portion, if any, of social security benefits that will be
included in an individual's gross income and subject to Federal income tax.
Holders are urged to consult their own tax advisers concerning an investment in
Units.
At the time of issuance of each Bond, an opinion relating to the validity of
the Bond and to the exemption of interest thereon from regular Federal income
taxes was or will be rendered by bond counsel. Neither the Sponsor nor Davis
Polk & Wardwell have made or will make any review of the proceedings relating
to the issuance of the Bonds or the basis for these opinions. The tax exemption
is dependent upon the issuer's (and other users') compliance with certain
ongoing requirements, and the opinion of bond counsel assumes that these
requirements will be complied with. However, there can be no assurance that the
issuer (and other users) will comply with these requirements, in which event
the interest on the Bond could be determined to be taxable retroactively to the
date of issuance.
B-13
<PAGE>
In the case of certain of the Bonds, the opinions of bond counsel indicate
that interest on such Bonds received by a "substantial user" of the facilities
being financed with the proceeds of such Bonds, or persons related thereto, for
periods while such Bonds are held by such a user or related person, will not be
exempt from regular Federal income taxes, although interest on such Bonds
received by others would be exempt from regular Federal income taxes.
"Substantial user" is defined under U.S. Treasury Regulations to include only a
person whose gross revenue derived with respect to the facilities financed by
the issuance of bonds is more than 5% of the total revenue derived by all users
of such facilities, or who occupies more than 5% of the usable area of such
facilities or for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" are defined to
include certain related natural persons, affiliated corporations, partners and
partnerships. Similar rules may be applicable for state tax purposes.
After the end of each calendar year, the Trustee will furnish to each Holder
an annual statement containing information relating to the interest received by
the Trust on the Bonds, the gross proceeds received by the Trust from the
disposition of any Bond (resulting from redemption or payment at maturity of
any Bond or the sale by the Trust of any Bond), and the fees and expenses paid
by the Trust. The Trustee will also furnish annual information returns to each
Holder and to the Internal Revenue Service. Holders are required to report to
the Internal Revenue Service the amount of tax-exempt interest received during
the year.
EXPENSES AND CHARGES
INITIAL EXPENSES
All 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."
Any of such fees may be increased without approval of the Unit holders by
amounts not exceeding proportionate increases in consumer prices for services
as measured by the United States Department of Labor's Consumer Price Index
entitled "All Services Less Rent" or, if such Index is no longer published, in
a similar Index to be determined by the Trustee and the Sponsor.
OTHER CHARGES
The following additional charges are or may be incurred by a Trust: all
expenses of the Trustee (including fees and expenses of counsel and auditors)
incurred in connection with its activities under the Trust Agreement, including
reports and communications to Unit holders; expenses and costs of any action
undertaken by the Trustee to protect a Trust and the rights and interests of
the Unit holders; fees of the Trustee for any extraordinary services performed
under the Trust Agreement; indemnification of the Trustee for any loss or
liability accruing to it without gross negligence, bad faith or willful
misconduct on its part, arising out of or in connection with its acceptance or
administration of a Trust; to the extent lawful, expenses (including legal,
accounting and printing expenses) of maintaining registration or qualification
of the Units and/or a Trust under Federal or state securities laws subsequent
to initial registration so long as the Sponsor maintains a market for the Units
and all taxes and other governmental charges imposed upon the Bonds or any part
of a Trust (no such taxes or charges are being levied or made or, to the
knowledge of the Sponsor, contemplated). The above expenses, including the
Trustee's fee, when paid by or owing to the Trustee, are secured by a lien on
the Trust. In addition, the Trustee is empowered to sell Bonds in order to make
funds available to pay all expenses.
B-14
<PAGE>
PUBLIC OFFERING
OFFERING PRICE
During the initial public offering period, the Public Offering Price of the
Units of a Trust is determined by adding to the Evaluator's determination of
the aggregate OFFERING price of the Bonds per Unit a sales charge equal to a
percentage of the Public Offering Price of the Units of the Trust, as set forth
in the table below. After the initial public offering period, the Public
Offering Price of the Units of a Trust will be determined by adding to the
Evaluator's determination of the aggregate BID price of the Bonds per Unit a
sales charge equal to 5.00% of the Public Offering Price (5.263% of the
aggregate bid price of the Bonds per Unit). A proportionate share of accrued
and undistributed interest on the Bonds in a Trust at the date of delivery of
the Units of such Trust to the purchaser is also added to the Public Offering
Price. (See "Rights of Unit Holders--Distribution of Interest and Principal.")
During the initial public offering period, the sales charge and dealer
concession for the Trusts will be reduced as follows:
<TABLE>
<CAPTION>
STATE TRUSTS
------------
PERCENT OF PERCENT OF
PUBLIC NET AMOUNT DEALER
UNITS PURCHASED+ OFFERING PRICE INVESTED CONCESSION
---------------- -------------- ---------- --------------
<S> <C> <C> <C>
1- 99.............................. 4.70% 4.932% $33.00
100-249.............................. 4.25% 4.439% $32.00
250-499.............................. 4.00% 4.167% $30.00
500-999.............................. 3.50% 3.627% $25.00
1,000 or more.......................... 3.00% 3.093% $20.00
<CAPTION>
NATIONAL TRUST
--------------
DEALER
CONCESSION
PERCENT OF PERCENT OF AS PERCENT OF
PUBLIC NET AMOUNT PUBLIC
UNITS PURCHASED+ OFFERING PRICE INVESTED OFFERING PRICE
---------------- -------------- ---------- --------------
<S> <C> <C> <C>
1- 99................................ 4.70% 4.932% 3.29%
100-249................................ 4.25% 4.439% 2.97
250-499................................ 4.00% 4.167% 2.80
500-999................................ 3.50% 3.627% 2.45
1,000 or more.......................... 3.00% 3.093% 2.10
</TABLE>
The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.
-------
+ The reduced sales charge is also applied on a dollar basis utilizing a
breakpoint equivalent in the above table of $1,000 for one Unit, etc.
Pursuant to employee benefit plans, Units of a Trust are available to
employees of the Sponsor, during the initial public offering period, at a
Public Offering Price equal to the Evaluator's determination of the aggregate
offering price of the Bonds of a Trust per Unit plus a sales charge of 1.25% of
the Public Offering Price and after the initial public offering period, at a
Public Offering Price equal to the Evaluator's determination of the aggregate
bid price of the Bonds of a Trust per Unit plus a sales charge of 1.25% of the
Public Offering Price. Sales through such plans to employees of the Sponsor
result in less selling effort and selling expenses than sales to the general
public.
METHOD OF EVALUATION
During the initial public offering period, the aggregate offering price of
the Bonds is determined by the Evaluator (1) on the basis of current offering
prices for the Bonds*, (2) if offering prices are not available for any Bonds,
on the basis of current offering prices for comparable securities, (3) by
appraisal, or (4) by any combination of the above. Such determinations are made
each business day as of the Evaluation Time set forth in the "Summary of
Essential Information," in Part A, effective for all sales made subsequent to
the last preceding determination. Following the initial public offering period,
the aggregate bid price of the Bonds (which is used to calculate the price at
which the Sponsor repurchases and sells Units in the secondary market and the
Redemption Price at which Units may be redeemed) will be determined by the
Evaluator (1) on the basis of the current bid prices for the Bonds*, (2) if bid
prices are not available for any Bonds, on the basis of current bid prices of
comparable securities, (3) by appraisal, or (4) by any combination of the
above. Such determinations will be made each business day as of the Evaluation
Time set forth in the "Summary of Essential Information," in Part A, effective
for all sales made subsequent to the last preceding determination. The term
"business day," as used herein shall exclude
-------
* Current offering or bid prices of the Deposited Units, if any, are based on
prevailing weekly evaluations of the obligations underlying such Deposited
Units.
B-15
<PAGE>
Saturdays, Sundays and any day on which the New York Stock Exchange is closed.
The difference between the bid and offering prices of the Bonds may be expected
to average approximately 1 1/2% of principal amount. In the case of actively
traded securities, the difference may be as little as 1/2 of 1%, and in the
case of inactively traded securities such difference will usually not exceed
3%. The price at which Units may be repurchased by the Sponsor in the secondary
market could be less than the price paid by the Unit holder. On the Date of
Deposit for each Trust the aggregate current offering price of such Bonds per
Unit exceeded the bid price of such Bonds per Unit by the amounts set forth
under "Summary of Essential Information" in Part A. For information relating to
the calculation of the Redemption Price per Unit, which is also based upon the
aggregate bid price of the underlying Bonds and which may be expected to be
less than the Public Offering Price per Unit, see "Rights of Unit Holders--
Redemption of Units."
DISTRIBUTION OF UNITS
During the initial public offering period Units of a Trust will be
distributed to the public at the Public Offering Price determined in the manner
provided above (see "Public Offering--Offering Price") through the Underwriters
and dealers. The initial public offering period is 30 days unless all Units of
a Trust are sold prior thereto, in which case the initial public offering
period terminates with the sale of all Units. So long as all Units initially
offered have not been sold, the Sponsor may extend the initial public offering
period for up to four additional successive 30-day periods. Upon completion of
the initial public offering, Units which remain unsold or which may be acquired
in the secondary market (see "Public Offering--Market for Units") may be
offered by this Prospectus at the Public Offering Price determined in the
manner provided above (see "Public Offering--Offering Price").
It is the Sponsor's intention to qualify Units of a Trust for sale through
the Underwriters and dealers who are members of the National Association of
Securities Dealers, Inc. Units of a State Trust will be offered for sale only
in the State for which the Trust is named, except that Units of a New York
Trust will also be offered for sale to residents of the State of Connecticut,
the State of Florida and the Commonwealth of Puerto Rico. Units will initially
be sold to dealers at prices which represent a concession equal to the amount
designated in the tables under "Public Offering--Offering Price" herein, for a
Trust with an unreduced sales charge as specified in Part A--"The Public
Offering Price." The Sponsor reserves the right to change the amount of the
concession to dealers from time to time. After the initial offering period the
dealer concession is negotiated on a case-by-case basis.
Sales will be made only with respect to whole Units, and the Sponsor reserves
the right to reject, in whole or in part, any order for the purchase of Units.
A purchaser does not become a Unit holder (Certificate holder) or become
entitled to exercise the rights of a Unit holder (including the right to redeem
his Units) until he has paid for his Units. Generally, such payment must be
made within five business days after an order for the purchase of Units has
been placed. The price paid by a Unit holder is the Public Offering Price in
effect at the time his order is received, plus accrued interest (see "Public
Offering--Method of Evaluation"). This price may be different from the Public
Offering Price in effect on any other day, including the day on which he made
payment for the Units.
MARKET FOR UNITS
Following the initial public offering period the Sponsor, although not
obligated to do so, presently intends to maintain a market for the Units of a
Trust and continuously to offer to purchase such Units at prices based upon the
aggregate bid price of the underlying Bonds. For information relating to the
method and frequency of the Evaluator's determination of the aggregate bid
price of the underlying Bonds, see "Public Offering--Method of Evaluation." The
Sponsor may cease to maintain such a market at any time and from time to time
without notice if the supply of Units of a Trust of this Series exceeds demand
or for any other reason. In this event the Sponsor may nonetheless purchase
Units, as a service to Unit holders, at prices based on the current Redemption
Price of those Units. In the event that a market is not maintained for the
Units of a Trust, a Unit holder of such Trust desiring to dispose of his Units
may be able to do so only by tendering such Units to the Trustee for redemption
at the Redemption Price, which is based upon the aggregate bid price of the
underlying Bonds. The aggregate bid price of the underlying Bonds of a Trust
may be expected to be less than the aggregate offering price.
EXCHANGE OPTION
Unit holders may elect to exchange any or all of their Units of this series
for units of one or more of any series of Tax Exempt Securities Trust (the
"Exchange Trust") available for sale in the state in which the Unit holder
resides at a Public Offering Price for the units of the Exchange Trust to be
acquired based on a fixed sales charge of $25 per unit. The Sponsor reserves
the right to modify, suspend or terminate this plan at any time without further
notice to Unit holders. Therefore, there is no assurance that a market for
units will in fact exist on any given date on which a Unit holder wishes to
sell his Units of this series and thus there is no assurance that the Exchange
Option will be available to a Unit holder. Exchanges will be effected in whole
units ONLY. If the proceeds from the Units being surrendered are less than the
cost of a whole number of units being acquired, the exchanging Holder will be
permitted to add cash in an amount to round up to the next highest number of
whole units.
B-16
<PAGE>
An exchange of Units pursuant to the Exchange Option for units of an Exchange
Trust will generally constitute a "taxable event" under the Code, i.e., a
Holder will recognize a gain or loss at the time of exchange. However, an
exchange of Units of this Trust for units of any other series of the Tax Exempt
Securities Trust which are grantor trusts for U.S. Federal income tax purposes
will not constitute a taxable event to the extent that the underlying
securities in each trust do not differ materially either in kind or in extent.
Unit holders are urged to consult their own tax advisors as to the tax
consequences to them of exchanging Units in particular cases.
Units of the Exchange Trust will be sold under the Exchange Option at the bid
prices of the underlying securities in the particular portfolio involved per
unit plus a fixed charge of $25 per unit. As an example, assume that a Unit
holder, who has three units of a trust with a current price of $1,020 per unit
based on the bid prices of the underlying securities, desires to exchange his
Units for units of a series of an Exchange Trust with a current price of $880
per unit based on the bid prices of the underlying securities. In this example,
the proceeds from the Unit holder's units will aggregate $3,060. Since only
whole units of an Exchange Trust may be purchased under the Exchange Option,
the Unit holder would be able to acquire four units in the Exchange Trust for a
total cost of $3,620 ($3,520 for the units and $100 for the sales charge).
REINVESTMENT PROGRAMS
Distributions of interest and principal, if any, are made to Unit holders
monthly. The Unit holder will have the option of either receiving his monthly
income check from the Trustee or participating in one of the reinvestment
programs offered by the Sponsor provided such Unit holder meets the minimum
qualifications of the reinvestment program and such program lawfully qualifies
for sale in the jurisdiction in which the Unit holder resides. Upon enrollment
in a reinvestment program, the Trustee will direct monthly interest
distributions and principal distributions, if any, to the reinvestment program
selected by the Unit holder. Since the Sponsor has arranged for different
reinvestment alternatives, Unit holders should contact the Sponsor for more
complete information, including charges and expenses. The appropriate
prospectus will be sent to the Unit holder. The Unit holder should read the
prospectus for a reinvestment program carefully before deciding to participate.
Participation in the reinvestment program will apply to all Units of a Trust
owned by a Unit holder and may be terminated at any time by the Unit holder, or
the program may be modified or terminated by the Trustee or the program's
Sponsor.
SPONSOR'S AND UNDERWRITERS' PROFITS
For their services the Underwriters (see Part A, "Underwriting") receive a
commission based on the sales charge of a particular Trust (see "Public
Offering--Offering Price") as adjusted pursuant to the Agreement Among
Underwriters. The Sponsor receives a gross commission equal to the applicable
sales charge for any Units they have underwritten, and receive the difference
between the applicable sales charge and the Underwriter's commission for the
remainder of the Units. In addition, the Sponsor may realize profits or sustain
losses, as the case may be, in the amount of any difference between the cost of
the Bonds to a Trust (which is based on the aggregate offering price of the
underlying Bonds on the Date of Deposit) and the purchase price of such Bonds
to the Sponsor (which is the cost of the Bonds at the time they were acquired
for the account of a Trust and the cost of the Deposited Units at the time they
were acquired by the Sponsor). (See Part A, "Portfolio of Securities"--Note
(3).) Under certain circumstances, an Underwriter may be entitled to share in
such profits, if any, realized by the Sponsor. The Sponsor may also realize
profits or sustain losses with respect to Bonds deposited in a Trust which were
acquired from its own organization or from underwriting syndicates of which it
was a member. During the initial public offering period the Underwriters also
may realize profits or sustain losses as a result of fluctuations after the
Date of Deposit in the offering prices of the Bonds and hence in the Public
Offering Price received by the Underwriters for Units. Cash, if any, made
available to the Sponsor prior to the anticipated first settlement date for the
purchase of Units may be used in the Sponsor's businesses to the extent
permitted by applicable regulations and may be of use to the Sponsor.
In maintaining a market for the Units of a Trust (see "Public Offering--
Market for Units"), the Sponsor will also realize profits or sustain losses in
the amount of any difference between the price at which they buy such Units and
the price at which they resell or redeem such Units (see "Public Offering--
Offering Price").
RIGHTS OF UNIT HOLDERS
CERTIFICATES
Ownership of Units of a Trust is evidenced by registered certificates
executed by the Trustee and the Sponsor. Certificates are transferable by
presentation and surrender to the Trustee properly endorsed or accompanied by a
written instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit holder may be required to pay $2.00 per certificate reissued or
transferred, and to pay any governmental charge that may be imposed in
connection with each such transfer or
B-17
<PAGE>
interchange. For new certificates issued to replace destroyed, stolen or lost
certificates, the Unit holder must furnish indemnity satisfactory to the
Trustee and must pay such expenses as the Trustee may incur. Mutilated
certificates must be surrendered to the Trustee for replacement.
DISTRIBUTION OF INTEREST AND PRINCIPAL
Interest and principal received by a Trust will be distributed on each
monthly Distribution Date on a pro rata basis to Unit holders in such Trust of
record as of the preceding Record Date. All distributions will be net of
applicable expenses and funds required for the redemption of Units and, if
applicable, reimbursements to the Trustee for interest payments advanced to
Unit holders on previous Monthly Distribution Dates. (See Part A, "Summary of
Essential Information," "Tax Exempt Securities Trust--Expenses and Charges" and
"Rights of Unit Holders--Redemption of Units.")
The Trustee will credit to the Interest Account of a Trust all interest
received by such Trust, including that part of the proceeds of any disposition
of Bonds of such Trust which represents accrued interest. Other receipts will
be credited to the Principal Account of a Trust. The pro rata share of the
Interest Account and the pro rata share of cash in the Principal Account
represented by each Unit of a Trust will be computed by the Trustee each month
as of the Record Date. (See Part A, "Summary of Essential Information.")
Proceeds received from the disposition of any of the Bonds subsequent to a
Record Date and prior to the next succeeding Distribution Date will be held in
the Principal Account and will not be distributed until the following
Distribution Date. The distribution to the Unit holders as of each Record Date
will be made on the following Distribution Date or shortly thereafter and shall
consist of an amount substantially equal to one-twelfth of such holders' pro
rata share of the estimated annual income to the Interest Account after
deducting estimated expenses (the "Monthly Income Distribution") plus such
holders' pro rata share of the cash balance in the Principal Account computed
as of the close of business on the preceding Record Date. Persons who purchase
Units between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date following their purchase of Units.
No distribution need be made from the Principal Account if the balance therein
is less than an amount sufficient to distribute $1.00 per Unit. The Monthly
Income Distribution per Unit initially will be in the amount shown under Part
A, "Summary of Essential Information" for a Trust and will change as the income
and expenses of such Trust change and as Bonds are exchanged, redeemed, paid or
sold.
Normally, interest on the Bonds in the Portfolio of a Trust is paid on a
semi-annual basis. Because Bond interest is not received by a Trust at a
constant rate throughout the year, any Monthly Income Distribution may be more
or less than the amount credited to the Interest Account as of the Record Date.
In order to eliminate fluctuations in Monthly Income Distributions resulting
from such variances, the Trustee is required by the Trust Agreement to advance
such amounts as may be necessary to provide Monthly Income Distributions of
approximately equal amounts. The Trustee will be reimbursed, without interest,
for any such advances from funds available from the Interest Account on the
next ensuing Record Date or Record Dates, as the case may be. If all or a
portion of the Bonds for which advances have been made subsequently fail to pay
interest when due, the Trustee may recoup advances made by it in anticipation
of receipt of interest payments on such Bonds by reducing the amount
distributed per Unit in one or more Monthly Interest Distributions. If units
are redeemed subsequent to such advances by the Trustee, but prior to receipt
by the Trustee of actual notice of such failure to pay interest, the amount of
which was so advanced by the Trustee, each remaining Unit holder will be
subject to a greater pro rata reduction in his Monthly Interest Distribution
than would have occurred absent such redemptions. Funds which are available for
future distributions, payments of expenses and redemptions are in accounts
which are non-interest bearing to Unit holders and are available for use by
United States Trust Company of New York, pursuant to normal banking procedures.
The Trustee is entitled to the benefit of any reasonable cash balances in the
Income and Principal Accounts. Because of the varying interest payment dates of
the Bonds comprising a Trust Portfolio, accrued interest at any point in time
will be greater than the amount of interest actually received by a Trust and
distributed to Unit holders. This excess accrued but undistributed interest
amount will be added to the value of the units on any purchase made after the
Date of Deposit. If a Unit holder sells all or a portion of his Units a portion
of his sale proceeds will be allocable to his proportionate share of the
accrued interest. Similarly, if a Unit holder redeems all or a portion of his
Units, the Redemption Price per Unit which he is entitled to receive from the
Trustee will also include his accrued interest on the Bonds. (See "Rights of
Unit Holders--Redemption of Units--Computation of Redemption Price per Unit.")
The Trustee is also entitled to withdraw from the Interest Account, and to the
extent funds are not sufficient therein, from the Principal Account, on one or
more Record Dates as may be appropriate, amounts sufficient to recoup advances
which it has made in anticipation of the receipt by the Trust of interest in
respect of Bonds which subsequently fail to pay interest when due.
As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust and, to the extent funds are not sufficient therein, from
the Principal Account of such Trust, amounts necessary to pay the expenses of
such Trust. (See "Tax Exempt Securities Trust--Expenses and Charges.") The
Trustee also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any governmental charges payable out of a
Trust. Amounts so withdrawn shall not be considered a part of the Trust's
assets until such time as the Trustee shall return all or any part of such
amounts to the appropriate account. In
B-18
<PAGE>
addition, the Trustee may withdraw from the Interest Account and the Principal
Account such amounts as may be necessary to cover redemption of Units by the
Trustee. (See "Rights of Unit Holders--Redemption of Units.")
The Trustee has agreed to advance to a Trust the amount of accrued interest
due on the Bonds of such Trust from their respective issue dates or previous
interest payment dates through the Date of Deposit. This accrued interest
amount will be paid to the Sponsor as the holder of record of all Units on the
first settlement date for the Units. Consequently, when the Sponsor sells Units
of a Trust, the amount of accrued interest to be added to the Public Offering
Price of the Units purchased by an investor will include only accrued interest
from the day after the Date of Deposit 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.
Within seven calendar days following such tender, the Unit holder will be
entitled to receive in cash an amount for each Unit tendered equal to the
Redemption Price per Unit computed as of the Evaluation Time set forth in the
"Summary of Essential Information" in Part A on the date of tender. (See
"Redemption of Units--Computation of Redemption Price per Unit.") The "date of
tender" is deemed to be the date on which Units are received by the Trustee,
except as regards Units received after the close of trading on the New York
Stock Exchange, the date of tender is the next day on which such Exchange is
open for trading, and such Units will be deemed
B-19
<PAGE>
to have been tendered to the Trustee on such day for redemption at the
Redemption Price computed on that day. For information relating to the purchase
by the Sponsor of Units tendered to the Trustee for redemption at prices in
excess of the Redemption Price, see "Redemption of Units--Purchase by the
Sponsor of Units Tendered for Redemption."
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal
Account. All other amounts paid on redemption shall be withdrawn from the
Principal Account. The Trustee is empowered to sell Bonds in order to make
funds available for redemption. Such sales, if required, could result in a sale
of Bonds by the Trustee at a loss. To the extent Bonds are sold, the size and
diversity of a Trust will be reduced.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or trading on that Exchange is restricted or during which (as
determined by the Securities and Exchange Commission) an emergency exists as a
result of which disposal or evaluation of the underlying Bonds is not
reasonably practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted.
COMPUTATION OF REDEMPTION PRICE PER UNIT--The Redemption Price per Unit of a
Trust is determined by the Trustee on the basis of the bid prices of the Bonds
in such Trust as of the Evaluation Time on the date any such determination is
made. The Redemption Price per Unit of a Trust is each Unit's pro rata share,
determined by the Trustee, of: (1) the aggregate value of the Bonds in such
Trust on the bid side of the market (determined by the Evaluator as set forth
below), (2) cash on hand in such Trust (other than funds covering contracts to
purchase Bonds), and accrued and unpaid interest on the Bonds as of the date of
computation, less (a) amounts representing taxes or governmental charges
payable out of such Trust, (b) the accrued expenses of such Trust, and (c) cash
held for distribution to Unit holders of such Trust of record as of a date
prior to the evaluation. The Evaluator may determine the value of the Bonds in
the Trust (1) on the basis of current bid prices for the Bonds, (2) if bid
prices are not available for any Bonds, on the basis of current bid prices for
comparable securities, (3) by appraisal, or (4) by any combination of the
above.
The difference between the bid and offering prices of the Bonds may be
expected to average approximately 1 1/2% of principal amount. In the case of
actively traded securities, the difference may be as little as 1/2 of 1%, and
in the case of inactively traded securities such difference usually will not
exceed 3%. The price at which Units may be redeemed could be less than the
price paid by the Unit holder. On the Date of Deposit for each Trust the
aggregate current offering price of such Bonds per Unit exceeded the bid price
of such Bonds per Unit by the amounts set forth under Part A, "Summary of
Essential Information."
PURCHASE BY THE SPONSOR OF UNITS TENDERED FOR REDEMPTION--The Trust Agreement
requires that the Trustee notify the Sponsor of any tender of Units for
redemption. So long as the Sponsor maintains a bid in the secondary market, the
Sponsor, prior to the close of business on the second succeeding business day,
will purchase any Units tendered to the Trustee for redemption at the price so
bid by making payment therefor to the Unit holder in an amount not less than
the Redemption Price not later than the day on which the Units would otherwise
have been redeemed by the Trustee. (See "Public Offering--Market for Units.")
The offering price of any Units resold by the Sponsor will be the Public
Offering Price determined in the manner provided in this Prospectus. (See
"Public Offering--Offering Price.") Any profit resulting from the resale of
such Units will belong to the Sponsor which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such Units. (See "Public Offering--Sponsor's and Underwriters'
Profits.")
SPONSOR
Smith Barney Inc., 1345 Avenue of the Americas, New York, New York 10105
("Smith Barney"), was incorporated in Delaware in 1960 and traces its history
through predecessor partnerships to 1873. Smith Barney, an investment banking
and securities broker-dealer firm, is a member of the New York Stock Exchange,
Inc. and other major securities and commodities exchanges, the National
Association of Securities Dealers, Inc. and the Securities Industry
Association. Smith Barney is an indirect wholly-owned subsidiary of The
Travelers Inc.
Smith Barney or an affiliate is investment adviser, principal underwriter or
distributor of 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 participating as a
member of various underwriting and selling groups or as agent of other
investment companies, the Sponsor also executes orders for the purchase and
sale of securities of investment companies and sells securities to such
companies in its capacity as broker or dealer in securities.
B-20
<PAGE>
LIMITATIONS ON LIABILITY
The Sponsor is liable for the performance of its obligations arising from its
responsibilities under the Trust Agreement, but will be under no liability to
Unit holders for taking any action or refraining from any action in good faith
or for errors in judgment or responsible in any way for depreciation or loss
incurred by reason of the sale of any Bonds, except in cases of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. (See "Sponsor--Responsibility" below.)
RESPONSIBILITY
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 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 (National Association), a national
banking association with its principal executive office located at 1 Chase
Manhattan Plaza, New York, New York 10081 and its unit investment trust office
at 770 Broadway, New York, New York 10003. The Trustee is subject to
supervision by the Comptroller of the Currency, the Federal Deposit Insurance
Corporation and the Board of Governors of the Federal Reserve System. In
connection with the storage and handling of certain Bonds deposited in the
Trust, the Trustee may use the services of The Depository Trust Company. These
services may include safekeeping of the Bonds and coupon-clipping, computer
book-entry transfer and institutional delivery services. The Depository Trust
Company is a limited purpose trust company organized under the Banking Law of
the State of New York, a member of the Federal Reserve System and a clearing
agency registered under the Securities Exchange Act of 1934.
LIMITATIONS ON LIABILITY
The Trustee shall not be liable or responsible in any way for depreciation or
loss incurred by reason of the disposition of any moneys, securities or
certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In addition, the Trustee shall not be personally liable
for any taxes or other governmental charges imposed upon or in respect of a
Trust which the Trustee may be required to pay under current or future law of
the United States or any other taxing authority having jurisdiction. (See "Tax
Exempt Securities Trust-- Portfolio.") For information relating to the
responsibilities and indemnification of the Trustee under the Trust Agreement,
reference is made to the material set forth under "Rights of Unit Holders",
"Sponsor--Resignation" and "Other Charges."
B-21
<PAGE>
RESIGNATION
By executing an instrument in writing and filing the same with the Sponsor,
the Trustee and any successor may resign. In such an event the Sponsor is
obligated to appoint a successor trustee as soon as possible. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over
by public authorities, the Sponsor may remove the Trustee and appoint a
successor as provided in the Trust Agreement. Such resignation or removal shall
become effective upon the acceptance of appointment by the successor trustee.
If no successor has accepted the appointment within thirty days after notice of
resignation, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of
a trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor trustee.
EVALUATOR
The Evaluator is Kenny S&P Evaluation Services, a division of J.J. Kenny Co.,
Inc., with main offices located at 65 Broadway, New York, New York 10006.
LIMITATIONS ON LIABILITY
The Trustee, Sponsor and Unit holders may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
Determination by the Evaluator under the Trust Agreement shall be made in good
faith upon the basis of the best information available to it; provided,
however, that the Evaluator shall be under no liability to the Trustee, the
Sponsor, or Unit holders for errors in judgment. But this provision shall not
protect the Evaluator in cases of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
RESPONSIBILITY
The Trust Agreement requires the Evaluator to evaluate the Bonds of a Trust
on the basis of their bid prices on the last business day of June and December
in each year, on the day on which any Unit of such Trust is tendered for
redemption and on any other day such evaluation is desired by the Trustee or is
requested by the Sponsor. For information relating to the responsibility of the
Evaluator to evaluate the Bonds on the basis of their offering prices, see
"Public Offering--Offering Price."
RESIGNATION
The Evaluator may resign or may be removed by the joint action of the Sponsor
and the Trustee, and in such event, the Sponsor and the Trustee are to use
their best efforts to appoint a satisfactory successor. Such resignation or
removal shall become effective upon the acceptance of appointment by a
successor evaluator. If upon resignation of the Evaluator no successor has
accepted appointment within thirty days after notice of resignation, the
Evaluator may apply to a court of competent jurisdiction for the appointment of
a successor.
B-22
<PAGE>
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
AMENDMENT
The Sponsor and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit holders when such an amendment is (1) to
cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interests of the Unit holders; provided, that the Trust Agreement is
not amended to increase the number of Units issuable thereunder or to permit
the deposit or acquisition of securities either in addition to or in
substitution for any of the Bonds initially deposited in a Trust, except for
the substitution of certain refunding securities for such Bonds or to permit
the Trustee to engage in business or investment activities not specifically
authorized in the Trust Agreement as originally adopted. In the event of any
amendment, the Trustee is obligated to notify promptly all Unit holders of the
substance of such amendment.
TERMINATION
The Trust Agreement provides that if the principal amount of Bonds held in
Trust is less than 50% of the principal amount of the Bonds originally
deposited in such Trust, the Trustee may in its discretion and will, when
directed by the Sponsor, terminate such Trust. A Trust may be terminated at any
time by 100% of the Unit holders. However, in no event may a Trust continue
beyond the Mandatory Termination Date set forth under Part A, "Summary of
Essential Information." In the event of termination, written notice thereof
will be sent by the Trustee to all Unit holders. Within a reasonable period
after termination, the Trustee will sell any Bonds remaining in the affected
Trust, and, after paying all expenses and charges incurred by such Trust, will
distribute to each Unit holder, upon surrender for cancellation of his
certificate for Units, his pro rata share of the balances remaining in the
Interest and Principal Account of such Trust.
LEGAL OPINION
The legality of the Units has been passed upon by Davis Polk & Wardwell, 450
Lexington Avenue, New York, New York 10017, as special counsel for the Sponsor.
AUDITORS
The statements of financial condition and the portfolios of securities
included in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent auditors, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
BOND RATINGS+
All ratings shown under Part A, "Portfolio of Securities", except those
identified otherwise, are by Standard & Poor's.
STANDARD & POOR'S
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation; and
-------
+As described by the rating agencies.
B-23
<PAGE>
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
principal.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal, and in the majority of instances they differ from AAA issues only in
small degrees.
A--Bonds rated A have a strong capacity to pay interest and repay principal,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher-rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher-rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "BB" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" following a rating indicates the rating
is provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.
Conditional rating(s), indicated by "Con" are given to bonds for which the
continuance of the security rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows and/or the security rating is conditional upon the
issuance of insurance by the respective insurance company.
MOODY'S
A brief description of the applicable Moody's rating symbols and their
meanings is as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. Aa bonds are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers "1," "2," or "3." The
numerical modifier "1" indicates that the security ranks at the high end, "2"
in the mid-range, and "3" nearer the low end of the generic category. These
modifiers of rating symbols "Aa," "A" and "Baa" are to give investors a more
precise indication of relative debt quality in each of the historically defined
categories.
FITCH
AAA--These bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--These bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong,
is somewhat less than for AAA rated securities or more subject to possible
change over the term of the issue.
B-24
<PAGE>
A--These bonds are considered to be investment grade and of good quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--These bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however are more likely to weaken this ability than bonds with
higher ratings.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
DUFF & PHELPS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.
A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.
FEDERAL TAX FREE VS. TAXABLE INCOME
This table shows the approximate yields which taxable securities must earn in
various income brackets to produce, after Federal income tax, returns
equivalent to specified tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the entire
amount of any increase or decrease in his or her taxable income resulting from
a switch from taxable to tax-exempt securities or vice versa. The table
reflects projected Federal income tax rates and the tax brackets for the 1995
taxable year. Because the Federal rate brackets are subject to adjustment based
on changes in the Consumer Price Index, the taxable equivalent yields for
subsequent years may vary somewhat from those indicated in the table. Use this
table to find your tax bracket. Read across to determine the approximate
taxable yield you would need to equal a return free of Federal income tax.
1995 TAX YEAR
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE INCOME BRACKET* TAX EXEMPT YIELD
FEDERAL
JOINT RETURN SINGLE RETURN TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
TAXABLE EQUIVALENT YIELD
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-$39,000 $ 0-$23,350 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
$ 39,001- 94,250 $ 23,350- 56,550 28.00% 5.56 6.25 6.94 7.64 8.33 9.03 9.72 10.42 11.11
$ 94,251-114,700 $ 56,551-114,700 31.00% 5.80 6.52 7.25 7.97 8.70 9.42 10.14 10.87 11.59
$114,701-143,600 $114,701-117,950 31.00% 5.80 6.61 7.35 8.08 8.81 9.55 10.28 11.02 11.75
$143,601-256,500 $117,951-256,500 36.00% 6.36 7.15 7.95 8.74 9.54 10.33 11.13 11.92 12.71
OVER $256,500 OVER $256,500 39.60% 6.76 7.60 8.44 9.29 10.13 10.98 11.82 12.67 13.51
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Note: This table reflects the following:
1 Taxable income equals adjusted gross income less personal exemptions of
$2,500 less the standard deduction of $6,550 on a joint or total itemized
deductions, whichever is greater. However under the provisions of the
Omnibus Budget Reconciliation Act of 1990, itemized deductions are
reduced by 3% of the amount of a taxpayer's AGI over $114,700. This is
reflected in the brackets above by higher effective federal tax rates.
Furthermore, personal exemptions are phased out for the amount of a
taxpayer's AGI over $114,700 for single taxpayers and $172,050 for
married taxpayers filing jointly. This letter provision is not
incorporated into the above brackets.
2 The combined effective rate is computed under the assumption that
taxpayers itemize their deductions on their federal tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
4 The taxable equivalent yield table does not incorporate the affect 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.
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.
CALIFORNIA TRUST
RISK FACTORS--
Since the start of the 1990-91 fiscal year, California has faced the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), exports and financial services, among
others, have all been severely affected. Job losses have been the worst of any
post-war recession and have continued through the end of 1993. Employment
levels are expected to stabilize before net employment starts to increase, and
pre-recession job levels are not expected to be reached for several more years.
Unemployment is expected to remain above 9% through 1994.
The recession has seriously affected State tax revenues, which basically
mirror economic conditions. It has also caused increased expenditures for
health and welfare programs. The State has also been facing a structural
imbalance in its budget with the largest programs supported by the General
Fund--K-12 schools and community colleges, health, welfare and corrections--
growing at rates higher than the growth rates for the principal revenue sources
of the General Fund. (The General Fund, the State's main operating fund,
consists of revenues which are not required to be credited to any other fund.)
As a result, the State has experienced recurring budget deficits. The State
Controller reports that expenditures exceeded revenues for four of the five
fiscal years ending with 1991-92, and were essentially equal in 1992-93. By
June 30, 1993, according to the Department of Finance, the State's Special Fund
for Economic Uncertainties had a deficit, on a budget basis, of approximately
$2.8 billion. (Special Funds account for revenues obtained from specific
revenue sources, and which are legally restricted to expenditures for specified
purposes.) The 1993-94 Budget Act incorporated a Deficit Reduction Plan to
repay this deficit over two years. The original budget for 1993-94 reflected
revenues which exceeded expenditures by approximately $2.8 billion. As a result
of continuing recession, the excess of revenues over expenditures for the
fiscal year is now expected to be only about $500 million. Thus, the
accumulated budget deficit at June 30, 1994 is now estimated by the Department
of Finance to be approximately $2 billion, and the deficit will not be retired
by June 30, 1995 as planned. The accumulated budget deficits over the past
several years, together with expenditures for school funding which have not
been reflected in the budget, and the reduction of available internal
borrowable funds, have combined to significantly deplete the State's cash
resources to pay its ongoing expenses. In order to meet its cash needs, the
State has had to rely for several years on a series of external borrowings,
including borrowings past the end of a fiscal year.
The State's tax revenue clearly reflects sharp declines in employment, income
and retail sales on a scale not seen in over 50 years. The May 1994 revision to
the 1994-95 Governor's Budget (the "May Revision"), released May 20, 1994,
assumes that the State will start recovery from recessionary conditions in
1994, with a modest upturn beginning in 1994 and continuing into 1995, a year
later than predicted in the May 1993 Department of Finance economic projection.
Pre-recession job levels are not expected to be reached until 1997.
However, there is growing evidence that California is showing signs of an
economic turnaround, and the May Revision is revised upward from the Governor's
January Budget forecast. Since the Governor's January Budget forecast, 1993
non-farm employment has been revised upward by 31,000 jobs. Employment in the
early months of 1994 has shown encouraging signs of growth, several months
sooner than was contemplated in the January Budget forecast. Between December
1993 and April 1994, payrolls are up by 50,000 jobs.
On January 17, 1994 the Northridge earthquake, measuring an estimated 6.8 on
the Richter Scale, struck Los Angeles. Significant property damage to private
and public facilities occurred in a four-county area including northern Los
Angeles County, Ventura County, and parts of Orange and San Bernadino Counties,
which were declared as State and federal disaster areas by January 18. Current
estimates of total property damage (private and public) are in the range of $20
billion or more, but these estimates are still subject to change.
C-1
<PAGE>
Despite such damage, on the whole, the vast majority of structures in the
areas, including large manufacturing and commercial buildings and all modern
high-rise offices, survived the earthquake with minimal or no damage,
validating the cumulative effect of strict building codes and thorough
preparation for such emergency by the State and local agencies.
Damage to State-owned facilities included transportation corridors and
facilities such as Interstate Highways 5 and 10 and State Highways 14, 118 and
210. Most of the major highways (Interstates 5 and 10) have now been reopened.
The campus at California State University Northridge (very near the epicenter)
suffered an estimated $350 million damage, resulting in the temporary closure
of the campus. It reopened using borrowed facilities elsewhere and many
temporary structures. There was also some damage to the University of
California at Los Angeles and to the Van Nuys State Office Building (now open
after a temporary closure). Overall, except for the temporary road and bridge
closures, and CSU-Northridge, the earthquake did not and is not expected to
significantly affect State government operations.
The State in conjunction with the federal government is committed to
providing assistance to local governments, individuals and businesses suffering
damage as a result of the earthquake, as well as to provide for the repair and
replacement of State-owned facilities. The federal government has provided
substantial earthquake assistance. The President immediately allocated some
available disaster funds, and Congress has approved additional funds for a
total of $9.5 billion of federal funds for earthquake relief, including
assistance to homeowners and small businesses, and costs for repair of damaged
public facilities. It is now estimated that the overall effect of the
earthquake on the regional and State economy will not be serious. The
earthquake may have dampened economic activity briefly during late January and
February, but the rebuilding efforts are now adding a small measure of
stimulus.
Sectors which are now contributing to California's recovery include
construction and related manufacturing, wholesale and retail trade,
transportation and several service industries such as amusements and
recreation, business services and management consulting. Electronics is showing
modest growth and the rate of decline in aerospace manufacturing is slowly
diminishing. These trends are expected to continue, and by next year, must of
the restructuring in the finance and utilities industries should be nearly
completed. As a result of these factors, average 1994 non-farm employment is
now forecast to maintain 1993 levels compared to a projected 0.6% decline in
the Governor's January Budget forecast. 1995 employment is expected to be up
1.6% compared to 0.7% in the January Budget forecast.
The Northridge earthquake resulted in a downward revision of this year's
personal income growth--from 4% in the Governor's January Budget forecast to
3.6%. However, this decline is more than explained by the $5.5 billion charge
against rental and proprietor's income--equal to 0.8% of total income--
reflecting uninsured damage from the quake. Next year, without the quake's
effects, income is projected to grow 6.1% compared to 5% projected in the
January Budget forecast. Without the quake's effects, income was little changed
in the May Revision compared to the January Budget forecast.
The housing forecast remains essentially unchanged from the January Budget
forecast. Although existing sales have strengthened and subdivision surveys
indicated increased new home sales, building permits are up only slightly from
recession lows. Gains are expected in the months ahead, but higher mortgage
interest rates will dampen the upturn. Essentially, the Northridge earthquake
adds a few thousand housing units to the forecast, but this effect is offset by
higher interest rates.
Interest rates represent one of several downside risks to the forecast. The
rise in interest rates has occurred more rapidly than contemplated in the
Governor's January Budget forecast. In addition to affecting housing, higher
rates may also dampen consumer spending, given the high percentage of
California homeowners with adjustable-rate mortgages. The May Revision forecast
includes a further rise in the Federal Funds rate to nearly 5% by the beginning
of 1995. Should rates rise more steeply, housing and consumer spending would be
adversely affected.
The unemployment upturn is still tenuous. The Employment Development
Department revised down February's employment gain and March was revised to a
small decline. Unemployment rates in California have been volatile since
January, ranging from 10.1% to a low of 8.6%, with July's figure at 9%. The
small sample size coupled with changes made to the survey instrument in January
contributed to this volatility.
1993-94 BUDGET
The Governor's Budget, introduced on January 8, 1993, proposed General Fund
expenditures of $37.3 billion, with projected revenues of $39.9 billion. To
balance the budget in the face of declining revenues, the Governor proposed a
series of revenue shifts from local government, reliance on increased federal
aid, and reductions in State spending.
The May Revision of the Governor's budget, released on May 20, 1993,
projected the State would have an accumulated deficit of about $2.75 billion by
June 30, 1993, essentially unchanged from the prior year. The Governor proposed
to eliminate this deficit over an
C-2
<PAGE>
18-month period. Unlike previous years, the Governor's Budget and May Revision
did not calculate a "gap" to be closed, but rather set forth revenue and
expenditure forecasts and proposals designed to produce a balanced budget.
The 1993-94 Budget Act was signed by the Governor on June 30, 1993, along
with implementing legislation. The Governor vetoed about $71 million in
spending. With enactment of the Budget Act, the State carried out its regular
cash flow borrowing program for the fiscal year with the issuance of $2 billion
of revenue anticipation notes maturing June 28, 1994.
The 1993-94 Budget Act was predicated on revenue and transfer estimates of
$40.6 billion, $400 million below 1992-93 (and the second consecutive year of
actual decline). The principal reasons for declining revenue were the continued
weak economy and the expiration (or repeal) of three fiscal steps taken in
1991--a half cent temporary sales tax, a deferral of operating loss carry
forwards, and repeal by initiative of a sales tax on candy and snack foods.
The 1993-94 Budget Act also assumed Special Fund revenues of $11.9 billion,
an increase of 2.9% over 1992-93. The 1993-94 Budget Act included General Fund
expenditures of $38.5 billion (a 6.3% reduction from projected 1992-93
expenditures of $41.1 billion), in order to keep a balanced budget within the
available revenues. The Budget also included Special Fund expenditures of $12.1
billion, a 4.2% increase. The Budget Act reflected the following major
adjustments:
1. Changes in local government financing to shift about $2.6 billion in
property taxes from cities, counties, special districts and redevelopment
agencies to school and community college districts. The property tax losses
for cities and counties were offset in part by additional sales tax
revenues and relief from some state mandated programs. Litigation by local
governments challenging this shift has so far been unsuccessful. In
November 1993 the voters approved the permanent extension of the 0.5% sales
tax for local public safety purposes.
2. The Budget projected K-12 Proposition 98 funding on a cash basis at
the same per-pupil level as 1992-93 by providing schools a $609 million
loan payable from future years' Proposition 98 funds.
3. The Budget assumed receipt of $692 million in aid to the State from
the federal government to offset health and welfare costs associated with
foreign immigrants living in the State. About $411 million of this amount
was one-time funding. Congress ultimately appropriated only $450 million.
4. Reductions of $600 million in health and welfare programs.
5. A 2-year suspension of the renters' tax credit ($390 million
expenditure reduction in 1993-94).
6. Miscellaneous one-time items, including deferral of payment to the
Public Employees Retirement Fund ($339 million) and a change in accounting
for debt service from accrual to cash basis, saving $107 million.
Administration reports during the course of the 1993-94 fiscal year have
indicated that, although economic recovery appears to have started in the
second half of the fiscal year, recessionary conditions continued longer than
had been anticipated when the 1993-94 Budget Act was adopted. Overall, revenues
for the 1993-94 fiscal year were about $800 million lower than original
projections, and expenditures were about $780 million higher, primarily because
of higher health and welfare caseloads, lower property taxes, which require
greater State support for K-14 education to make up the shortfall, and lower
than anticipated federal government payments for immigration-related costs. The
most recent reports, however, in May and June 1994, indicated that revenues in
the second half of the 1993-94 fiscal year have been very close to the
projections made in the Governor's Budget of January 10, 1994, which is
consistent with a slow turnaround in the economy.
During the 1993-94 fiscal year, the State implemented the Deficit Reduction
Plan, which was a part of the 1993-94 Budget Act, by issuing $1.2 billion of
revenue anticipation warrants in February 1994, maturing December 21, 1994.
This borrowing reduced the cash deficit at the end of the 1993-94 fiscal year.
Nevertheless, because of the $1.5 billion variance from the original Budget Act
assumption, the General Fund ended the fiscal year at June 30, 1994 carrying
forward an accumulated deficit of approximately $2 billion. Because of the
revenue shortfall and the State's reduced internal borrowing cash resources, in
addition to the $1.2 billion of revenue anticipation warrants issued as part of
the Deficit Reduction Plan, the State issued an additional $2 billion of
revenue anticipation warrants, maturing July 26, 1994, which were needed to
fund the State's obligations and expenses through the end of the 1993-94 fiscal
year.
1994-95 BUDGET
The 1994-95 fiscal year represents the fourth consecutive year the Governor
and Legislature were faced with a very difficult budget environment to produce
a balanced budget. Many program cuts and budgetary adjustments have already
been made in the last three years. The Governor's May Revision to his Budget
proposal recognized that the accumulated deficit could not be repaid in one
year, and proposed a two-year solution. The May Revision sets forth revenue and
expenditure forecasts and revenue and expenditure proposals which result in
operating surpluses for the budget for both 1994-95 and 1995-96, and lead to
the elimination of the accumulated deficit, estimated at about $2 billion at
June 30, 1994, by June 30, 1996.
C-3
<PAGE>
The 1994-95 Budget Act, signed by the Governor on July 8, 1994, projects
revenues and transfers of $41.9 billion, about $2.1 billion higher than revenues
in 1993-94. This reflects the Administration's forecast of an improved economy.
Also included in this figure is the projected receipt of about $360 million from
the Federal Government to reimburse the State for the cost of incarcerating
undocumented immigrants. The State will not know how much the Federal Government
will actually provide until the Federal fiscal year 1995 Budget is completed,
which is expected to be by October 1994. The Legislature took no action on a
proposal in the Governor's January Budget to undertake expansion of the transfer
of certain programs to counties, which would also have transferred to counties
0.5% of the State's current sales tax. The Budget Act projects Special Fund
revenues of $12.1 billion, a decrease of 2.4% from 1993-94 estimated levels.
The 1994-95 Budget Act projects General Fund expenditures of $40.9 billion,
an increase of $1.6 billion over 1993-94. The Budget Act also projects Special
Fund expenditures of $13.7 billion, a 5.4% increase over 1993-94 estimated
expenditures. The principal features of the Budget Act were the following:
1. Receipt of additional federal aid in 1994-95 of about $400 million for
costs of refugee assistance and medical care for undocumented aliens,
thereby offsetting a similar General Fund cost. The State will not know how
much of these funds it will receive until the Federal fiscal year 1994
Budget is passed.
2. Reductions of approximately $1.1 billion in health and welfare
programs.
3. A General Fund increase of approximately $38 million in support for
the University of California and $65 million for the California State
University. It is anticipated that student fees for both the U.C. and the
C.S.U will increase up to 10%.
4. Proposition 98 funding for K-14 schools is increased by $526 million
from the 1993-94 levels, representing an increase for enrollment growth and
inflation. Consistent with previous budget agreements, Proposition 98
funding provides approximately $4,217 per student for K-12 schools, equal
to the level in the past three years.
5. Legislation enacted with the Budget Act clarifies laws passed in 1992
and 1993 requiring counties and other local agencies to transfer funds to
local school districts, thereby reducing State aid. Some counties had
implemented programs providing less moneys to schools if there were
redevelopment agencies projects. The legislation bans this method of
transfers.
6. The Budget Act provides funding for anticipated growth in the State's
prison inmate population, including provisions for implementing recent
legislation (the so-called "Three Strikes" law) which requires mandatory
life sentences for certain third-time felony offenders.
7. Additional miscellaneous cuts ($500 million) and fund transfers ($255
million) totalling in the aggregate approximately $755 million.
The 1994-95 Budget Act contains no tax increases. Under legislation enacted
for the 1993-94 Budget, the renters' tax credit was suspended for 1993 and
1994. A ballot proposition to permanently restore the renters' credit after
this year failed at the June 1994 election. The Legislature enacted a further
one-year suspension of the renters' tax credit, saving about $390 million in
the 1995-96 fiscal year. The 1994-95 Budget assumes that the State will use a
cash flow borrowing program in 1994-95 which combines one-year notes and
warrants. Issuance of the warrants allows the State to defer repayment of
approximately $1 billion of its accumulated budget deficit into the 1995-96
fiscal year.
THE FOREGOING DISCUSSION OF THE 1993-94 AND 1994-95 FISCAL YEAR BUDGETS IS
BASED IN LARGE PART ON STATEMENTS MADE IN A RECENT "PRELIMINARY OFFICIAL
STATEMENT" DISTRIBUTED BY THE STATE OF CALIFORNIA. IN THAT DOCUMENT, THE STATE
INDICATED THAT ITS DISCUSSION OF THE 1994-95 FISCAL YEAR BUDGET IS BASED ON
ESTIMATES AND PROJECTIONS OF REVENUES AND EXPENDITURES FOR THE CURRENT FISCAL
YEAR AND MUST NOT BE CONSTRUED AS STATEMENTS OF FACT. THE STATE NOTED FURTHER
THAT THE ESTIMATES AND PROJECTIONS ARE BASED UPON VARIOUS ASSUMPTIONS WHICH MAY
BE AFFECTED BY NUMEROUS FACTORS, INCLUDING FUTURE ECONOMIC CONDITIONS IN THE
STATE AND THE NATION, AND THAT THERE CAN BE NO ASSURANCE THAT THE ESTIMATES
WILL BE ACHIEVED.
STATE APPROPRIATIONS LIMIT
The State is subject to an annual appropriations limit imposed by Article
XIIIB of the State Constitution (the "Appropriations Limit"), and is prohibited
from spending "appropriations subject to limitation" in excess of the
Appropriations Limit. Article XIIIB, originally adopted in 1979, was modified
substantially by Propositions 98 and 111 in 1988 and 1990, respectively.
"Appropriations subject to limitation" are authorizations to spend "proceeds of
taxes," which consist of tax revenues and certain other funds, including
proceeds from regulatory licenses, user charges or other fees to the extent
that such proceeds exceed the reasonable cost of providing the regulation,
product or service. The Appropriations Limit is based on the limit for the
prior year, adjusted annually for certain changes, and is tested over
consecutive two-year periods. Any excess of the aggregate proceeds of taxes
received over such two-year period above the combined Appropriation Limits for
those two years is divided equally between transfers to K-14 districts and
refunds to taxpayers.
C-4
<PAGE>
Exempted from the Appropriations Limit are debt service costs of certain
bonds, court or federally mandated costs, and, pursuant to Proposition 111,
qualified capital outlay projects and appropriations or revenues derived from
any increase in gasoline taxes and motor vehicle weight fees above January 1,
1990 levels. Some recent initiatives were structured to create new tax revenues
dedicated to specific uses and expressly exempted from the Article XIIIB limits.
The Appropriations Limit may also be exceeded in cases of emergency arising from
civil disturbance or natural disaster declared by the Governor and approved by
two-thirds of the Legislature. If not so declared and approved, the
Appropriations Limit for the next three years must be reduced by the amount of
the excess.
Article XIIIB, as amended by Proposition 98 on November 8, 1988, also
establishes a minimum level of state funding for school and community college
districts and requires that excess revenues up to a certain limit be
transferred to schools and community college districts instead of returned to
the taxpayers. Determination of the minimum level of funding is based on
several tests set forth in Proposition 98. During fiscal year 1991-1992
revenues were smaller than expected, thus reducing the payment owed to schools
in 1991-92 under alternate "test" provisions. In response to the changing
revenue situation, and to fully fund the Proposition 98 guarantee in the 1991-
1992 and 1992-1993 fiscal years without exceeding it, the Legislature enacted
legislation to reduce 1991-92 appropriations. The amount budgeted to schools
but which exceeded the reduced appropriation was treated as a non-Proposition
98 short-term loan in 1991-92. As part of the 1992-93 Budget, $1.083 billion of
the amount budgeted to K-14 schools was designated to "repay" the prior year
loan, thereby reducing cash outlays in 1992-93 by that amount. To maintain per-
average daily attendance ("ADA") funding, the 1992-93 Budget included loans of
$732 million to K-12 schools and $241 million to community colleges, to be
repaid from future Proposition 98 entitlements. The 1993-94 Budget also
provided new loans of $609 million to K-12 schools and $178 million to
community colleges to maintain ADA funding. These loans have been combined with
the 1992-93 fiscal year loans into one loan of $1.760 billion, to be repaid
from future years' Proposition 98 entitlements, and conditioned upon
maintaining current funding levels per pupil at K-12 schools. A Sacramento
County Superior Court in California Teachers' Association, et al. v Gould, et
al., has ruled that the 1992-93 loans to K-12 schools and community colleges
violate Proposition 98. The impact of the court's ruling on the State budget
and funding for schools is unclear and will remain unclear until the Court's
written ruling, which is currently being prepared, is issued.
The 1994-95 Budget Act has appropriated $14.4 billion of Proposition 98 funds
for K-14 schools, exceeding the minimum Proposition 98 guaranty by $8 million
to maintain K-12 funds per pupil at $4,217. Based upon State revenues, growth
rates and inflation factors, the 1994-95 Budget Act appropriations an
additional $286 million within Proposition 908 for the 1993-94 fiscal year to
reflect a need in appropriations for school district and county officers of
education, as well as an anticipated deficiency in special education funding.
Because of the complexities of Article XIIIB, the ambiguities and possible
inconsistencies in its terms, the applicability of its exceptions and
exemptions and the impossibility of predicting future appropriations, the
Sponsor cannot predict the impact of this or related legislation on the bonds
in the Trust Portfolio. Other Constitutional amendments affecting state and
local taxes and appropriations have been proposed from time to time. If any
such initiatives are adopted, the State could be pressured to provide
additional financial assistance to local governments or appropriate revenues as
mandated by such initiatives. Propositions such as Proposition 98 and others
that may be adopted in the future, may place increasing pressure on the State's
budget over future years, potentially reducing resources available for other
State programs, especially to the extent the Article XIIIB spending limit would
restrain the States's ability to fund such other programs by raising taxes.
STATE INDEBTEDNESS
As of July 1, 1994, the State had over $18.39 billion aggregate amount of its
general obligation bonds outstanding. General obligation bond authorizations in
aggregate amount of approximately $5.16 billion remained unissued as of July 1,
1994. The State also builds and acquires capital facilities through the use of
lease purchase borrowing. As of June 30, 1994, the State had approximately
$5.09 billion of outstanding Lease-Purchase Debt.
In addition to the general obligation bonds, State agencies and authorities
had approximately $23.3 billion aggregate principal amount of revenue bonds and
notes outstanding as of June 30, 1994. Revenue bonds represent both obligations
payable from State revenue-producing enterprises and projects, which are not
payable from the General Fund, and conduit obligations payable only from
revenues paid by private users of facilities financed by such revenue bonds.
Such enterprises and projects include transportation projects, various public
works and exposition projects, educational facilities (including the California
State University and University of California systems), housing, health
facilities and pollution control facilities.
LITIGATION
The State is a party to numerous legal proceedings, many of which normally
occur in governmental operations. In addition, the State is involved in certain
other legal proceedings that, if decided against the State, might require the
State to make significant future expenditures or impair future revenue sources.
Examples of such cases include challenges to certain vehicle license fees, and
challenges to the State's use of Public Employee Retirement System funds to
offset future State and local pension contributions. Other cases which
C-5
<PAGE>
could significantly impact revenue or expenditures involve reimbursement to
school districts for voluntary school desegregation and state mandated costs,
challenges to Medi-Cal eligibility, recovery for flood damages, and liability
for toxic waste cleanup. Because of the prospective nature of these
proceedings, it is not presently possible to predict the outcome of such
litigation or estimate the potential impact on the ability of the State to pay
debt service on its obligation.
On June 20, 1994, the United States Supreme Court, in two companion cases,
upheld the validity of California's prior method of taxing multinational
corporations under a "unitary" method of accounting for their worldwide
earnings, thus avoiding tax refunds of approximately $1.55 billion by the
State, and enabling the State to collect $620 million in previous assessments.
Barclays Bank PLC v. Franchise Tax Board concerned foreign corporations, and
Colgate-Palmolive v. Franchise Tax Board concerned domestic corporations.
RATINGS
On July 15, 1994, Standard & Poor's Corporation ("Standard & Poor's"),
Moody's Investors Service, Inc. ("Moody's"), and Fitch Investors Service, Inc.
("Fitch") all downgraded their ratings of California's general obligation
bonds. These bonds are usually sold in 20- to 30-year increments and used to
finance the construction of schools, prisons, water systems and other projects.
The ratings were reduced by Standard & Poor's from "A+" to "A", by Moody's from
"Aa" to "A1", and by Fitch from "AA" to "A". Since 1991, when it had a "AAA"
rating, the State's rating has been downgraded three times by all three ratings
agencies. All three agencies cite the 1994-95 Budget Act's dependence on a
"questionable" federal bailout to pay for the cost of illegal immigrants, the
Propositions 98 guaranty of a minimum portion of State revenues for
kindergarten through community college, and the persistent deficit requiring
more borrowing as reasons for the reduced rating. Another concern was the
State's reliance on a standby mechanism which could trigger across-the-board
reductions in all State programs, and which could disrupt State operations,
particularly in fiscal year 1995-96. However, a Standard & Poor's spokesman
stated that, although the lowered ratings means California is a riskier
borrower, Standard & Poor's anticipates that the State will pay off its debts
and not default. There can be no assurance that such ratings will continue for
any given period of time or that they will not in the future be further
revised.
As a result of Orange County's Chapter 9 bankruptcy filing on December 6,
1994, Moody's has suspended the County's bond ratings, and Standard & Poor's
has cut its rating of all Orange County debt from "AA-" to "CCC", a level below
investment grade and an indication of high risk and uncertainty. Fitch does not
rate Orange County bonds. It is anticipated that as Orange County's credit and
bond ratings fall, it will have difficulty in getting loans or selling its
bonds to raise money. Additionally, the County's bankruptcy filing could affect
about 180 municipalities, school districts, and other municipal entities which
entrusted billions of dollars to Orange County to invest. Standard & Poor's has
informed such entities that they have been placed on negative credit watch, the
usual step prior to a downgrade of credit rating.
The Sponsor believes the information summarized above describes some of the
more significant aspects relating to the California Trust. The sources of such
information are Preliminary Official Statements and Official Statements
relating to the State's general obligation bonds and the State's revenue
anticipation notes, or obligations of other issuers located in the State of
California, or other publicly available documents. Although the Sponsor has not
independently verified this information, it has no reason to believe that such
information is not correct in all material respects.
CALIFORNIA TAXES
In the opinion of Messrs. Adams, Duque & Hazeltine, Los Angeles, California,
special counsel on California tax matters, under existing law:
The California Trust is not an association taxable as a corporation under
the income tax laws of the State of California;
The income, deductions and credits against tax of the California Trust
will be treated as the income, deductions and credits against tax of the
holders of Units in the California Trust under the income tax laws of the
State of California;
Interest on the bonds held by the California Trust to the extent that
such interest is exempt from taxation under California law will not lose
its character as tax-exempt income merely because that income is passed
through to the holders of Units; however, a corporation subject to the
California franchise tax is required to include that interest income in its
gross income for purposes of determining its franchise tax liability;
Each holder of a Unit in the California Trust will have a taxable event
when the California Trust disposes of a bond (whether by sale, exchange,
redemption, or payment at maturity) or when the Unit holder redeems or
sells his Units. The total tax cost of each Unit to a holder of a Unit in
the California Trust is allocated among each of the bond issues held in the
California Trust (in accordance with the proportion of the California Trust
comprised by each bond issue) in order to determine the holder's per Unit
tax cost for each bond issue, and the tax cost reduction requirements
relating to amortization of bond premium will apply separately to the per
Unit tax cost of each bond issue. Therefore, under some circumstances, a
holder of a Unit may realize taxable gain when the California Trust which
issued such Unit disposes of a bond or the holder's Units are sold or
redeemed for an amount equal to or less than his original cost of the bond
or Unit;
C-6
<PAGE>
Each holder of a Unit in the California Trust is deemed to be the owner
of a pro rata portion of the California Trust under the personal property
tax laws of the State of California; and
Each Unit holder's pro rata ownership of the bonds held by the California
Trust, as well as the interest income therefrom, is exempt from California
personal property taxes.
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.
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.
C-7
<PAGE>
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 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
C-8
<PAGE>
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.
NEW YORK TRUST
RISK FACTORS--Prospective investors should consider the financial
difficulties and pressures which the State of New York and several of its
public authorities and municipal subdivisions have undergone. The following
briefly summarizes some of these difficulties and the current financial
situation, based principally on certain official statements currently
available; copies may be obtained without charge from the issuing entity.
NEW YORK STATE. In recent fiscal years, there have been extended delays in
adopting the State's budget, repeated revisions of budget projections,
significant revenue shortfalls (as well as increased expenses) and year-end
borrowing to finance deficits. These developments reflect faster long-term
growth in State spending than revenues and that the State was earlier and more
severely affected by the recent economic recession than most of the rest of the
country, as well as its substantial reliance on non-recurring revenue sources.
The State's general fund incurred cash basis deficits of $775 million, $1,081
million and $575 million, respectively, for the 1990-92 fiscal years. Measures
to deal with deteriorating financial conditions included transfers from reserve
funds, recalculating the State's pension fund obligations (subsequently ruled
illegal), hiring freezes and layoffs, reduced aid to localities, sales of State
property to State authorities, and additional borrowings (including issuance of
additional short-term tax and revenue anticipation notes payable out of
impounded revenues in the next fiscal year). The general fund realized a $671
million surplus for fiscal year ended March 31, 1993, and a $1.54 billion
surplus for the fiscal year ended March 31, 1994. Results for the fiscal year
ended March 31, 1995, are projected to be in balance.
Approximately $5.2 billion of State general obligation debt was outstanding
at March 31, 1995. State supported debt (restated to reflect LGAC's assumption
of certain obligations previously funded through issuance of short-term debt)
was $27.9 billion at March 31, 1995, up from $9.8 billion in 1986. A proposed
constitutional amendment would prohibit additional lease-purchase and
contractual obligation financing for State facilities, but would authorize the
State without voter referendum to issue revenue bonds within a formula-based
cap, secured solely by a pledge of certain State tax receipts. It would also
restrict State debt to capital projects included in a multi-year capital
financing plan. The proposal is subject to approval by voters in November. S&P
reduced its ratings of the State's general obligation bonds on January 13, 1992
to A-(its lowest rating for any state). Moody's reduced its ratings of State
general obligation bonds from A1 to A on June 6, 1990 and to Baa1, its rating
of $14.2 billion of appropriation-backed debt of the State and State agencies
(over two-thirds of the total debt) on January 6, 1992.
In May 1991 (nearly 2 months after the beginning of the 1992 fiscal year),
the State Legislature adopted a budget to close a projected $6.5 billion gap
(including repayment of $905 million of fiscal 1991 deficit notes). Measures
included $1.2 billion in new taxes and fees, $0.9 billion in non-recurring
measures and about $4.5 billion of reduced spending by State agencies
(including layoffs), reduced aid to localities and school districts, and
Medicaid cost containment measures. After the Governor vetoed $0.9 billion in
spending, the State adopted $0.7 billion in additional spending, together with
various measures including a $100 million increase in personal income taxes and
$180 million of additional non-recurring measures. Due primarily to declining
revenues and escalating Medicaid and social service expenditures, $0.4 billion
of administrative actions, $531 million of year-end short-term borrowing and a
$44 million withdrawal from the Tax Stabilization Reserve Fund were required to
meet the State's cash flow needs.
C-9
<PAGE>
The State budget to close a projected $4.8 billion gap for the State's 1993
fiscal year (including repayment of the fiscal 1992 short-term borrowing)
contained a combination of $3.5 billion of spending reductions (including
measures to reduce Medicaid and social service spending, as well as further
employee layoffs, reduced aid to municipalities and schools and reduced support
for capital programs), deferral of scheduled tax reductions, and some new and
increased fees. Nonrecurring measures aggregated $1.18 billion.
To close a projected budget gap of nearly $3 billion for the fiscal year
ended March 31, 1994, the State budget contained various measures including
further deferral of scheduled income tax reductions, some tax increases, $1.6
billion in spending cuts, especially for Medicaid, and further reduction of the
State's work force. The budget increased aid to schools, and included a formula
to channel more aid to districts with lower-income students and high property
tax burdens. State legislation requires deposit of receipts from the petroleum
business tax and certain other transportation-related taxes into funds
dedicated to transportation purposes. Nevertheless, $516 million of these
monies were retained in the general fund during this fiscal year. The Division
of the Budget has estimated that non-recurring income items other than the $671
million surplus from the 1993 fiscal year aggregated $318 million.
The budget for the fiscal year ended March 31, 1995, increased spending by
3.8% (greater than inflation for the first time in six years). It provided a
tax credit for low income families and increased aid to education, especially
in the poorer districts. The State reduced coverage and placed additional
restrictions on certain health care services. Over $1 billion resulted from
postponement of scheduled reductions in personal income taxes for a fifth year
and in taxes on hospital income; another $1.5 billion came from non-recurring
measures. The Governor in January 1995 instituted $188 million in spending
reductions (including a hiring freeze) and $71 million of other measures to
avert a deficit.
More than two months after the fiscal year that began April 1, 1995, the
State adopted a budget to close a projected gap of approximately $5 billion,
including a reduction in income and business taxes. The financial plan projects
nearly $1.6 billion in savings from cost containment, disbursement reestimates
and reduced funding for social welfare programs and $2.2 billion from State
agency actions. Approximately $1 billion of the gap-closing measures are non-
recurring and some of the revenue and cost-cutting estimates are considered
optimistic. A suit was filed seeking to block introduction of the State's new
lottery game, expected to produce $80-200 million in annual revenues.The State
Comptroller sued to prevent reallocation of $110 million of reserves from a
special pension fund and has projected gaps of $2.7 billion for fiscal 1997 and
$3.9 billion for fiscal 1998 (substantially above the Governor's projections),
reflecting in part the last two years of the Governor's proposal to reduce
personal income taxes by 20% over three years. State and other estimates are
subject to uncertainties including the effects of Federal tax legislation and
economic developments.
The State normally adjusts its cash basis balance by deferring until the
first quarter of the succeeding fiscal year substantial amounts of tax refunds
and other disbursements. For many years, it also paid in that quarter more than
40% of its annual assistance to local governments. Payment of these annual
deferred obligations and the State's accumulated deficit was substantially
financed by issuance of short-term tax and revenue anticipation notes shortly
after the beginning of each fiscal year. The New York Local Government
Assistance Corporation ("LGAC") was established in 1990 to issue $4.7 billion
of long-term bonds over several years, payable from a portion of the State
sales tax, to fund certain payments to local governments traditionally funded
through the State's annual seasonal borrowing. The legislation will normally
prevent State seasonal borrowing until an equal amount of LGAC bonds are
retired. The State's last seasonal borrowing, in May 1993, was $850 million.
Generally accepted accounting principles ("GAAP") for municipal entities
apply modified accrual accounting and give no effect to payment deferrals. On
an audited GAAP basis, the State's government funds group recorded operating
deficits of $1.2 billion and $1.4 billion for the 1990 and 1991 fiscal years.
For the same periods the general fund recorded deficits (net of transfers from
other funds) of $0.7 billion and $1.0 billion. Reflecting $1.6 billion, $881
million and $875 million of payments by LGAC to local governments out of
proceeds from bond sales, the general fund realized surpluses of $1.7 billion,
$2.1 billion and $0.9 billion for the 1992, 1993 and 1994 fiscal years. A $0.9
billion deficit has been projected for the fiscal year ended March 31, 1995.
For decades, the State's economy has grown more slowly than that of the rest
of the nation as a whole. Part of the reason for this decline has been
attributed to the combined State and local tax burden, which is among the
highest in the nation. The State's dependence on Federal funds and sensitivity
to changes in economic cycles, as well as the high level of taxes, may continue
to make it difficult to balance State and local budgets in the future. The
total employment growth rate in the State has been below the national average
since 1984. The State lost 524,000 jobs in 1990-1992. It regained approximately
185,000 jobs between November 1992 and June 1995.
New York City (the "City"). The City is the State's major political
subdivision. In 1975, the City encountered severe financial difficulties,
including inability to refinance $6 billion of short-term debt incurred to meet
prior annual operating deficits. The City lost access to the public credit
markets for several years and depended on a variety of fiscal rescue measures
including commitments by certain institutions to postpone demands for payment,
a moratorium on note payment (later declared unconstitutional), seasonal loans
from the Federal government under emergency congressional legislation, Federal
guarantees of certain City bonds, and sales and exchanges of bonds by The
Municipal Assistance Corporation for the City of New York ("MAC") to fund the
City's debt.
C-10
<PAGE>
MAC has no taxing power and pays its obligations out of sales taxes imposed
within the City and per capita State aid to the City. The State has no legal
obligation to back the MAC bonds, although it has a "moral obligation" to do
so. MAC is now authorized to issue bonds only for refunding outstanding issues
and up to $1.5 billion should the City fail to fund specified transit and
school capital programs. The State also established the Financial Control Board
("FCB") to review the City's budget, four-year financial plans, borrowings and
major contracts. These were subject to FCB approval until 1986 when the City
satisfied statutory conditions for termination of such review. The FCB is
required to reimpose the review and approval process in the future if the City
were to experience certain adverse financial circumstances. The City's fiscal
condition is also monitored by a Deputy State Comptroller.
From 1989 to 1993, the gross city product declined by 10.1% and employment,
by almost 11%, while the public assistance caseload grew by over 25%.
Unemployment averaged 10.8% in 1992, 10.1% in 1993 and 8.7% in 1994. While the
City's unemployment rate has declined since then, it is still above the State
and the nation as a whole. The number of persons on welfare exceeds 1.1
million, the highest level since 1972, and one in seven residents is currently
receiving some form of public assistance.
While the City, as required by State law, has balanced its budgets in
accordance with GAAP since 1981, this has required exceptional measures in
recent years. City expenditures have grown faster than revenues each year from
1986 through 1994, masked in part by a large number of non-recurring gap
closing actions. To eliminate potential budget gaps of $1-$3 billion each year
since 1988 the City has taken a wide variety of measures. In addition to
increased taxes and productivity increases, these have included hiring freezes
and layoffs, reductions in services, reduced pension contributions, and a
number of nonrecurring measures such as bond refundings, transfers of surplus
funds from MAC, sales of City property and tax receivables. The FCB concluded
that the City has neither the economy nor the revenues to do everything its
citizens have been accustomed to expect.
The City closed a budget gap for the 1993 fiscal year (estimated at $1.2
billion) through actions including service reductions, productivity
initiatives, transfer of $0.5 billion surplus from the 1992 fiscal year and
$100 million from MAC. A November 1992 revision offset an additional $561
million in projected expenditures through measures including a refunding to
reduce current debt service costs, reduction in the reserve and an additional
$81 million of gap closing measures. Over half of the City's actions to
eliminate the gap were non-recurring.
The Financial Plan for the City's 1994 fiscal year relied on increases in
State and Federal aid, as well as the 1993 $280 million surplus and a partial
hiring freeze, to close a gap resulting primarily from labor settlements and
decline in property tax revenues. The Plan contained over $1.3 billion of one-
time revenue measures including bond refundings, sale of various City assets
and borrowing against future property tax receipts. Interim expenditure
reductions of approximately $300 million were implemented. The FCB reported
that although a $98 million surplus was projected for the year (the surplus was
actually $81 million), a $312 million shortfall in budgeted revenues and $904
million of unanticipated expenses (including an unbudgeted increase of over
3,300 in the number of employees and a record level of overtime), net of
certain increased revenues and other savings, resulted in depleting prior
years' surpluses by $326 million.
The City's original Financial Plan for the fiscal year ended June 30, 1995
proposed to eliminate a projected $2.3 billion budget gap through measures
including reduction of the City's workforce (achieved in substantial part
through voluntary severance packages funded by MAC), increased State and
Federal aid, a bond refinancing, reduced contributions to City pension funds
and sale of certain City assets. The Mayor's proposals include efforts toward
privatization of certain City services and agencies (a labor union underbid
private bidders on one recent contract), greater control of independent
authorities and agencies (the Schools Chancellor resigned following numerous
conflicts with the Mayor), and reducing social service expenditures (including
stricter eligibility requirements and fingerprinting of recipients). He also
sought concessions from labor unions representing City employees. As several of
these measures failed to be implemented, the City experienced lower than
anticipated tax collections and higher than budgeted costs (particularly
overtime and liability claims) during the year, and various alternative
measures were implemented, for an aggregate of more than $3 billion of gap
closing measures. $1.9 billion of these were non-recurring and, in the case of
a second bond refinancing, will increase City expenses for future years.
Reduced maintenance of City infrastructure could also lead to increased future
expenses. In December 1994, the City Council rejected the Mayor's
recommendations, adopted its own budget revisions and sued to enforce them; the
suit was dismissed and the Mayor impounded funds to achieve his proposed
expense reductions.
The City projected a $3.1 billion budget gap for the fiscal year that began
July 1, 1995, attributed to the large use of non-recurring measures in the 1995
fiscal year, a $500 million decline in tax revenues and a $630 million
shortfall in anticipated State aid, as well as higher Medicaid and agency
spending, failure to negotiate increased lease payments for City airports,
additional funding for pensions and State failure to adopt a tort reform
measure. The Financial Plan approved in June will reduce a wide range of City
services, City agency and labor savings are projected at $1.2 billion and $600
million respectively. The City Comptroller identified $0.7 to $1.0 billion of
risks for the current fiscal year, including anticipated State and Federal aid
increases, savings in welfare expenditures through
C-11
<PAGE>
increased fraud detection, proposed gap closing measures by the Board of
Education and a substantial projected deficit for the Health and Hospitals
Corporation, labor concessions (including health insurance costs) and increased
rental payments for the City's airports. However, buyers subsequently agreed to
acquire the City-owned television station for $207 million, more than twice the
anticipated sale price. Estimates of non-recurring measures range from $500-800
million. The Mayor separately proposed selling the City's water system to the
New York Water Board, which would issue $2.3 billion of bonds for the purpose.
This would provide the City with about $800 million in cash over the next four
years. The City Comptroller has threatened to block the sale unless the City
commits to use these funds only for capital projects. The plan also would
provide $200 million of capital spending for the Board of Education, which is
contingent on its approval. Issuance of bonds by the Water Board would also
permit the City to issue more bonds as it approaches its debt limit. Most of
the proposed gap-closing measures depend on cooperation of Federal or State
governments or municipal unions, of which there can be no assurance. The City
Comptroller predicted that certain reductions in Medicaid and welfare
expenditures may lead to job reductions and higher costs for other programs.
The City projects budget gaps of $0.9 billion, $1.5 billion and $1.5 billion
for the 1997, 1998 and 1999 fiscal years. The City Comptroller has identified
risks of $2-2.5 billion, $2.8-$3.3 billion and $2.9-3.4 billion for those
years, respectively. The State Comptroller cited principally growing Medicaid,
employee health insurance and debt service costs. Fiscal monitors have
commented that the City needs to take significant additional actions to work
toward structural balance.
A major uncertainty is the City's labor costs, which represent about 50% of
its total expenditures. The City's workforce grew by 34% during the 1980s. A
January 1993 agreement covering approximately 44% of the City workers followed
negotiations lasting nearly two years. Workers received wage and benefit raises
totalling 8.25% over 39 months ended March 1995. An agreement announced in
August 1993 provides wage increases for City teachers averaging 9% over the 48
1/2 months ending October 1995. The City is seeking to negotiate workforce
productivity initiatives, savings from which would be shared with the workers
involved. Under a contract reached in September 1994, while sanitation workers
would receive an overall increase of 8.25% in wages and benefits over 39
months, routes would be lengthened by an average of 20%. However, no similar
agreements have been reached with other unions and the savings have been
largely offset by an increase in overtime. The Financial Plan assumes no
further wage increases after the 1995 fiscal year. Also, costs of some previous
wage increases were offset by reduced contributions to pension funds; because
fund performance has been less than the earnings projected, the City will need
to increase contributions by $300 million, beginning in the current fiscal
year. A tentative agreement with labor leaders in June 1995 proposes to realize
$440 million of the $600 million in savings sought for the current fiscal year,
mostly from reduced health care costs and spreading out City contributions to
pension funds. Certain of these actions will increase City costs in future
years. The agreement did not include layoffs or changes in productivity or work
rules. Commitments for the remaining $140 million were unspecified.
Budget balance may also be adversely affected by the effect of the economy on
economically sensitive taxes. Reflecting the downturn in real estate prices and
increasing defaults, estimates of property tax revenues have been reduced. If
this trend continues, the City's ability to issue additional general obligation
bonds could be limited by the 1998 fiscal year. The City also faces uncertainty
in its dependence on State aid. Other uncertainties include additional
expenditures to combat deterioration in the City's infrastructure (such as
bridges, schools and water supply), costs of developing alternatives to ocean
dumping of sewage sludge (which the City expects to defray through increased
water and sewer charges), cost of the AIDS epidemic and problems of drug
addiction and homelessness. For example, the City may be ordered to spend up to
$8 billion to construct water filtration facilities if it is not successful in
implementing measures to prevent pollution of its watershed upstate. In
December 1994 the City submitted for State approval proposed new pervasive
regulations of activities in the area which can cause pollution. The City has
been sued by local landowners; also State regulations proposed in March 1995
that would require prior notification and approval of City land purchases would
undermine a major component of the City's plan. Elimination of any additional
budget gaps will require various actions, including by the State, a number of
which are beyond the City's control. Staten Island voters in 1993 approved a
proposed charter under which Staten Island would secede from the City.
Secession will require enabling legislation by the State Legislature; it would
also be subject to legal challenge by the City. The effects of secession on the
City cannot be determined at this time, but questions include responsibility
for outstanding debt, a diminished tax base, and continued use of the Fresh
Kills landfill, the City's only remaining garbage dump. A similar measure with
respect to Queens was approved by the New York State Senate.
The City sold $1.4 billion, $1.8 billion, $2.2 billion and $1.5 billion of
short-term notes, respectively, during the 1993, 1994, 1995 and current fiscal
years. The City projects that $2.4 billion of notes will be issued in the
current fiscal year. At June 30, 1995, there were outstanding $23.3 billion of
City bonds (not including City debt held by MAC), $4.1 billion of MAC bonds and
$1.1 billion of City-related public benefit corporation indebtedness, each net
of assets held for debt service. Standard & Poor's and Moody's during the 1975-
80 period either withdrew or reduced their ratings of the City's bonds. S&P
reduced its rating of the City's general obligation debt to BBB+ on July 10,
1995, citing the City's economy, substantial retention of non-recurring
revenues and optimistic revenue projections in the latest budget. Moody's rates
City bonds Baa1. City-related debt almost doubled since 1987, although total
debt declined as a percentage of estimated full value of real property. The
City's financing program projects long-term financing during fiscal years 1996-
1999 to
C-12
<PAGE>
aggregate $14.6 billion. An additional $0.8 billion is to be derived from other
sources, principally use of restricted cash balances. Assuming sale of the
City's water system, from fiscal year 1999 through fiscal year 2005, debt
service is estimated to average 18.2% of tax revenues, up from 12.3% in fiscal
year 1990 and 14% in fiscal year 1995. If the sale is not consummated, the debt
service ratio would increase. The City's latest Ten Year Capital Strategy plans
capital expenditures of $45.6 billion during 1994-2003 (93% of be City funded).
OTHER NEW YORK LOCALITIES. In 1993, other localities had an aggregate of
approximately $17.7 billion of indebtedness outstanding. In recent years,
several experienced financial difficulties. A March 1993 report by Moody's
Investors Service concluded that the decline in ratings of most of the State's
largest cities in recent years resulted from the decline in the State's
manufacturing economy. $105 million of that was for deficit financing. Any
reductions in State aid to localities may cause additional localities to
experience difficulty in achieving balanced budgets. County executives have
warned that reductions in State aid to localities to fund future State tax
reductions are likely require increased local taxes. If special local
assistance were needed from the State in the future, this could adversely
affect the State's as well as the localities' financial condition. Most
localities depend on substantial annual State appropriations. Legal actions by
utilities to reduce the valuation of their municipal franchises, if successful,
could result in localities becoming liable for substantial tax refunds.
STATE PUBLIC AUTHORITIES. In 1975, after the Urban Development Corporation
("UDC"), with $1 billion of outstanding debt, defaulted on certain short-term
notes, it and several other State authorities became unable to market their
securities. Since 1975 the State has provided substantial direct and indirect
financial assistance to UDC, the Housing Finance Agency ("HFA"), the
Environmental Facilities Corporation and other authorities. Practical and legal
limitations on these agencies' ability to pass on rising costs through rents
and fees could require further State appropriations. 18 State authorities had
an aggregate of $70.3 billion of debt outstanding at September 30, 1994. At
March 31, 1995, approximately $0.4 billion of State public authority
obligations was State-guaranteed, $7.0 billion was moral obligation debt
(including $4.6 billion of MAC debt) and $22.7 billion was financed under
lease-purchase or contractual obligation financing arrangements with the State.
Various authorities continue to depend on State appropriations or special
legislation to meet their budgets.
The Metropolitan Transportation Authority ("MTA"), which oversees operation
of the City's subway and bus system by the City Transit Authority (the "TA")
and operates certain commuter rail lines, has required substantial State and
City subsidies, as well as assistance from several special State taxes.
Measures to balance the TA's 1993 budget included increased funding by the
City, increased bridge and tunnel tolls and allocation of part of the revenues
from the petroleum business tax. The New York City Transit Financial plan
submitted in May 1995 projects a TA deficit of $150 million for 1995
(reflecting a $113 million reduction in City funding), and cash basis budget
gaps of $262 million, $547 million, $673 million and $731 million for 1996
through 1999. An MTA budget gap of $388 million is projected for 1996. In
August 1995, the MTA Chairman proposed an ambitious program of fare increases
(20% for the TA) and a five-year program of $2.85 billion in expense reductions
which he urged was needed to restore the MTA budget to a sound financial basis.
Substantial claims have been made against the TA and the City for damages
from a 1990 subway fire and a 1991 derailment. The MTA infrastructure,
especially in the City, needs substantial rehabilitation. In December 1993, a
$9.5 billion MTA Capital Plan was finally approved for 1992-1996; however, $500
million was contingent on increased contributions from the City which it has
declined to approve. Also, in December 1994 the MTA Capital Program Review
Board failed to approve a proposed bond resolution to permit financing in
significant part, as proposed, through receipts from the petroleum business
tax. The Governor has requested the MTA to postpone the $690 million of
borrowing for capital spending under the Plan for 1995. It is anticipated that
the MTA and the TA will continue to require significant State and City support.
Moody's reduced its rating of certain MTA obligations to Baa on April 14, 1992.
LITIGATION. The State and the City are defendants in numerous legal
proceedings, including challenges to the constitutionality and effectiveness of
various welfare programs, alleged torts and breaches of contract, condemnation
proceedings and other alleged violations of laws. Adverse judgments in these
matters could require substantial financing not currently budgeted. For
example, in addition to real estate certiorari proceedings, claims in excess of
$286 billion were outstanding against the City at June 30, 1994, for which it
estimated its potential future liability at $2.6 billion. It was recently
reported that settlement of claims against the City for the effects of lead
poisoning may cost $500 million during the next several years. Another action
seeks a judgment that, as a result of an overestimate by the State Board of
Equalization and Assessment, the City's 1992 real estate tax levy exceeded
constitutional limits. In March 1993, the U.S. Supreme Court ruled that if the
last known address of a beneficial owner of accounts held by banks and
brokerage firms cannot be ascertained, unclaimed funds therein belong to the
state of the broker's incorporation rather than where its principal office is
located. New York agreed to pay $351 million by the 2003 fiscal year.
Final adverse decisions in any of these cases could require extraordinary
appropriations at either the State or City level or both.
NEW YORK TAXES
In the opinion of Davis Polk & Wardwell, special counsel for the Sponsor,
under existing New York law:
C-13
<PAGE>
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-14
<PAGE>
TAX FREE VS. TAXABLE INCOME
The following tables show the approximate yields which taxable securities
must earn in various income brackets to equal tax exempt yields under combined
Federal and state individual income tax rates. This table reflects projected
Federal income tax rates and tax brackets for the 1995 taxable year and state
income tax rates that were available on the date of the Prospectus. Because
the Federal rate brackets are subject to adjustment based on changes in the
Consumer Price Index, the taxable equivalent yields for subsequent years may
be lower than indicated. A table is computed on the theory that the taxpayer's
highest bracket tax rate is applicable to the entire amount of any increase or
decrease in taxable income (after allowance for any resulting change in state
income tax) resulting from a switch from taxable to tax-free securities or
vice versa. Variations between state and Federal allowable deductions and
exemptions are generally ignored. The state tax is thus computed by applying
to the Federal taxable income bracket amounts shown in the table the
appropriate state rate for those same dollar amounts. For example, a married
couple living in the State of California and filing a Joint Return with
$53,000 in taxable income for the 1995 tax year would need a taxable
investment yielding 9.06% 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 CALIFORNIA
1995 TAX YEAR*
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-9,444 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72% 8.32% 8.91% 9.51%
$9,445-22,384 16.70 4.80 5.40 6.00 6.60 7.20 7.80 8.40 9.00 9.60
$22,385-35,324 18.40 4.90 5.51 6.13 6.74 7.35 7.97 8.58 9.19 9.80
$35,325-39,000 20.10 5.01 5.63 6.26 6.88 7.51 8.14 8.76 9.39 10.01
$39,001-49,038 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34 11.08 11.82
$49,039-61,974 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57 11.32 12.08
$61,975-94,250 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72 11.48 12.25
$94,251-114,700 37.42 6.39 7.19 7.99 8.79 9.59 10.39 11.19 11.98 12.78
$114,701-143,600 38.26 6.48 7.29 8.10 8.91 9.72 10.53 11.34 12.15 12.96
$143,601-214,928 42.93 7.01 7.89 8.76 9.64 10.51 11.39 12.27 13.14 14.02
$214,929-256,500 43.37 7.06 7.95 8.83 9.71 10.60 11.48 12.36 13.24 14.13
$256,501-429,858 46.71 7.51 8.44 9.38 10.32 11.26 12.20 13.14 14.07 15.01
Over $429,858 47.30 7.59 8.54 9.49 10.44 11.39 12.33 13.28 14.23 15.18
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0-4,722 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72% 8.32% 8.91% 9.51%
$4,723-11,192 16.70 4.80 5.40 6.00 6.60 7.20 7.80 8.40 9.00 9.60
$11,193-17,662 18.40 4.90 5.51 6.13 6.74 7.35 7.97 8.58 9.19 9.80
$17,663-23,350 20.10 5.01 5.63 6.26 6.88 7.51 8.14 8.76 9.39 10.01
$23,351-24,519 32.32 5.91 6.65 7.39 8.13 8.87 9.60 10.34 11.08 11.82
$24,520-30,987 33.76 6.04 6.79 7.55 8.30 9.06 9.81 10.57 11.32 12.08
$30,988-56,550 34.70 6.13 6.89 7.66 8.42 9.19 9.95 10.72 11.48 12.25
$56,551-107,464 37.42 6.39 7.19 7.99 8.79 9.59 10.39 11.19 11.98 12.78
$107,465-114,700 37.90 6.44 7.25 8.05 8.86 9.66 10.47 11.27 12.08 12.88
$114,701-117,950 38.74 6.53 7.35 8.16 8.98 9.79 10.61 11.43 12.24 13.06
$117,951-214,929 43.37 7.06 7.95 8.83 9.71 10.60 11.48 12.36 13.24 14.13
$214,930-256,500 44.00 7.14 8.04 8.93 9.82 10.71 11.61 12.50 13.39 14.29
Over $256,500 47.30 7.59 8.54 9.49 10.44 11.39 12.33 13.28 14.23 15.18
</TABLE>
-------
* The amounts shown represent 1995 Federal tax rates and 1994 California tax
rates. California has not yet published 1995 tax rates. The income amount
shown is income subject to Federal income tax reduced by adjustments to
income, exemptions, and itemized deductions (including the deduction for
state income tax). If the standard deduction had been taken for Federal
income tax purposes in order to reach the amount shown in the table, the
taxable equivalent yield required to equal a specified tax-exempt yield would
be at least as great as that shown in the table. It is assumed that the
investor is not subject to the alternative minimum tax. Where applicable,
investors should take into account the provisions of the Code under which the
benefit of certain itemized deductions and the benefit of personal exemptions
are limited in the case of higher income individuals. Under the Code, an
individual taxpayer with adjusted gross income in excess of a $114,700
threshold amount is subject to an overall limitation on certain itemized
deductions, requiring a reduction equal to the lesser of (i) 3% of adjusted
gross income in excess of the $114,700 threshold amount or (ii) 80% of the
amount of such itemized deductions otherwise allowable. The benefit of each
personal exemption is phased out for married taxpayers filing a joint return
with adjusted gross income in excess of $172,050 and for single taxpayers
with adjusted gross income in excess of $114,700. Personal exemptions are
phased out at the rate of two percentage points for each $2,500 (or fraction
thereof) of adjusted gross income in excess of the applicable threshold
amount. California has adopted provisions corresponding to the Federal law
provisions limiting the benefit of certain itemized deductions and phasing
out the benefit of personal exemptions. However, the California threshold
amounts and percentage reductions differ from those applicable under Federal
law. The Federal and California tax brackets, the threshold amounts at which
itemized deductions are subject to reduction, and the range over which
personal exemptions are phased out will be adjusted for inflation. The 36%
and the 39.6% Federal tax brackets will, however, be adjusted for inflation
only for years after 1994.
C-15
<PAGE>
STATE OF NEW JERSEY
1995 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.30% 7.00% 7.50% 8.00%
INCOME BRACKET* TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 20,000 16.45% 4.79% 5.39% 5.98% 6.58% 7.18% 7.78% 8.38% 8.98% 9.57%
$ 20,001 to 39,000 16.81 4.81 5.41 6.01 6.61 7.21 7.81 8.41 9.02 9.62
$ 39,001 to 50,000 29.53 5.68 6.39 7.10 7.80 8.51 9.22 9.93 10.64 11.35
$ 50,001 to 70,000 30.14 5.73 6.44 7.16 7.87 8.59 9.30 10.02 10.74 11.45
$ 70,001 to 80,000 31.06 5.80 6.53 7.25 7.98 8.70 9.43 10.15 10.88 11.60
$ 80,001 to 94,250 32.33 5.91 6.65 7.39 8.13 8.87 9.61 10.34 11.08 11.82
$ 94,251 to 114,700 35.15 6.17 6.94 7.71 8.48 9.25 10.02 10.79 11.56 12.34
$114,701 to 143,600 36.02 6.25 7.03 7.82 8.60 9.38 10.16 10.94 11.72 12.50
$143,601 to 150,000 40.86 6.76 7.61 8.45 9.30 10.15 10.99 11.84 12.68 13.53
$150,001 to 256,500 41.22 6.81 7.66 8.51 9.36 10.21 11.06 11.91 12.76 13.61
Over $256,500 44.69 7.23 8.14 9.04 9.94 10.85 11.75 12.66 13.56 14.46
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 20,000 16.45 4.79 5.39 5.98 6.58 7.18 7.78 8.38 8.98 9.57
$ 20,001 to 23,350 16.81 4.81 5.41 6.01 6.61 7.21 7.81 8.41 9.02 9.62
$ 23,351 to 35,000 29.53 5.68 6.39 7.10 7.80 8.51 9.22 9.93 10.64 11.35
$ 35,001 to 40,000 31.06 5.80 6.53 7.25 7.98 8.70 9.43 10.15 10.88 11.60
$ 40,001 to 56,550 32.33 5.91 6.65 7.39 8.13 8.87 9.61 10.34 11.08 11.82
$ 56,551 to 75,000 35.15 6.17 6.94 7.71 8.48 9.25 10.02 10.79 11.56 12.34
$ 75,001 to 114,700 35.54 6.21 6.98 7.76 8.53 9.31 10.06 10.86 11.64 12.41
$114,701 to 117,950 36.41 6.29 7.08 7.86 8.65 9.44 10.22 11.01 11.79 12.58
$117,951 to 256,500 41.22 6.81 7.66 8.51 9.36 10.21 11.06 11.91 12.76 13.61
Over $256,500 44.69 7.23 8.14 9.04 9.94 10.85 11.75 12.68 13.56 14.46
</TABLE>
-------
Note: This table reflects the following:
1 Taxable income equals adjusted gross income ("AGI") less personal exemptions
of $2,500 less the standard deduction of $6,550 on a joint return or total
itemized deductions, whichever is greater. However, itemized deductions are
reduced by % of the amount of a taxpayer's AGI over $114,700. This is
reflected in the brackets above by higher effective tax rates. Furthermore,
personal exemptions are phased out for the amount of a taxpayer's AGI over
$114,700 for single taxpayers and $172,050 for married taxpayers filing
jointly. This latter provision is not incorporated into the above brackets.
2 The combined effective rate is computed under the assumption that taxpayers
itemize their deductions on their federal tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates used
are the highest rates applicable to the income levels indicated within each
bracket.
STATE OF NEW YORK
1995 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 14,000 19.36% 4.96% 5.58% 6.20% 6.82% 7.44% 8.06% 8.68% 9.30% 9.92%
$ 14,001 to 28,000 20.21 5.01 5.64 6.27 6.89 7.52 8.15 8.77 9.40 10.03
$ 28,001 to 39,000 21.06 5.07 5.70 6.33 6.97 7.60 8.23 8.87 9.50 10.13
$ 39,001 to 94,250 33.13 5.98 6.73 7.48 8.22 8.97 9.72 10.47 11.22 11.96
$ 94,251 to 114,700 35.92 6.24 7.02 7.80 8.58 9.36 10.14 10.92 11.70 12.48
$114,701 to 143,600 36.78 6.33 7.12 7.91 8.70 9.49 10.28 11.07 11.86 12.65
$143,601 to 256,500 41.56 6.84 7.70 8.56 9.41 10.27 11.12 11.98 12.83 13.69
Over $256,500 45.01 7.27 8.18 9.09 10.00 10.91 11.82 12.73 13.64 14.55
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 7,000 19.36 4.96 5.58 6.20 6.82 7.44 8.06 8.68 9.30 9.92
$ 7,001 to 14,000 20.21 5.01 5.64 6.27 6.89 7.52 8.15 8.77 9.40 10.03
$ 14,001 to 23,350 21.06 5.07 5.70 6.33 6.97 7.60 8.23 8.87 9.50 10.13
$ 23,351 to 56,550 33.13 5.98 6.73 7.48 8.22 8.97 9.72 10.47 11.22 11.96
$ 56,551 to 114,700 35.92 6.24 7.02 7.80 8.58 9.36 10.14 10.92 11.70 12.48
$114,701 to 117,950 36.78 6.33 7.12 7.91 8.70 9.49 10.28 11.07 11.86 12.65
$117,951 to 256,500 41.56 6.84 7.70 8.56 9.41 10.27 11.12 11.98 12.83 13.69
Over $256,500 45.01 7.27 8.18 9.09 10.00 10.91 11.82 12.73 13.64 14.55
</TABLE>
-------
Note: This table reflects the following:
1 Taxable income equals adjusted gross income ("AGI") less personal
exemptions of $2,500 less the standard deduction of $6,550 on a joint
return or total itemized deductions, whichever is greater. However,
itemized deductions are reduced by 3% of the amount of a taxpayer's AGI
over $114,700. This is reflected in the brackets above by higher effective
federal tax rates. Furthermore, personal exemptions are phased out for the
amount of a taxpayer's AGI over $114,700 for single taxpayers and $172,050
for married taxpayers filing jointly. This latter provision is not
incorporated into the above brackets.
2 The combined effective rate is computed under the assumption that
taxpayers itemize their deductions on their federal income tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
C-16
<PAGE>
CITY OF NEW YORK
1995 TAX YEAR
<TABLE>
<CAPTION>
TOTAL APPROX. COMBINED
NEW FEDERAL, STATE & TAX EXEMPT YIELD
TAXABLE YORK NEW YORK CITY 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
INCOME BRACKET RATES TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 14,000 7.73% 21.57% 5.10% 5.74% 6.37% 7.01% 7.65% 8.29% 8.92% 9.56% 10.20%
$ 14,001 to 14,400 8.73 22.42 5.16 5.80 6.44 7.09 7.73 8.38 9.02 9.67 10.31
$ 14,401 to 27,000 9.13 22.76 5.18 5.83 6.47 7.12 7.77 8.41 9.06 9.71 10.36
$ 27,001 to 28,000 9.43 23.01 5.20 5.85 6.49 7.14 7.79 8.44 9.09 9.74 10.39
$ 28,001 to 39,000 10.43 23.85 5.25 5.91 6.57 7.22 7.88 8.54 9.19 9.85 10.51
$ 39,001 to 45,000 10.43 35.51 6.20 6.98 7.75 8.53 9.30 10.08 10.85 11.53 12.40
$ 45,001 to 94,250 10.48 35.54 6.21 6.98 7.76 8.53 9.31 10.08 10.86 11.64 12.41
$ 94,251 to 108,000 10.48 38.23 6.48 7.28 8.09 8.90 9.71 10.52 11.33 12.14 12.95
$108,001 to 114,700 10.53 38.26 6.48 7.29 8.10 8.91 9.72 10.53 11.34 12.15 12.96
$114,701 to 143,600 10.53 39.09 6.57 7.39 8.21 9.03 9.85 10.67 11.49 12.31 13.14
$143,601 to 256,500 10.53 43.70 7.11 7.99 8.88 9.77 10.66 11.55 12.43 13.32 14.21
Over $256,500 10.53 47.02 7.55 8.49 9.44 10.38 11.33 12.27 13.21 14.16 15.10
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 7,000 7.73 21.57 5.10% 5.74% 6.37% 7.01% 7.65% 8.29% 8.92% 9.56% 10.20%
$ 7,001 to 8,000 8.73 22.42 5.16 5.80 6.44 7.09 7.73 8.38 9.02 9.67 10.31
$ 8,001 to 14,000 9.13 22.76 5.18 5.83 6.47 7.12 7.77 8.41 9.06 9.71 10.36
$ 14,001 to 15,000 10.13 23.61 5.24 5.89 6.55 7.20 7.85 8.51 9.16 9.82 10.47
$ 15,001 to 23,350 10.43 23.86 5.25 5.91 6.57 7.22 7.88 8.54 9.19 9.85 10.51
$ 23,351 to 25,000 10.43 35.51 6.20 6.98 7.75 8.53 9.30 10.08 10.85 11.63 12.40
$ 25,001 to 56,550 10.48 35.54 6.21 6.98 7.76 8.53 9.31 10.08 10.86 11.64 12.41
$ 56,551 to 60,000 10.48 38.23 6.48 7.28 8.09 8.90 9.71 10.52 11.33 12.14 12.95
$ 60,001 to 114,700 10.53 38.26 6.48 7.29 8.10 8.91 9.72 10.53 11.34 12.15 12.96
$114,701 to 117,950 10.53 39.09 6.57 7.39 8.21 9.03 9.85 10.67 11.49 12.31 13.14
$117,951 to 256,500 10.53 43.70 7.11 7.99 8.88 9.77 10.66 11.55 12.43 13.32 14.21
Over $256,500 10.53 47.02 7.55 8.49 9.44 10.38 11.33 12.27 13.21 14.16 15.10
</TABLE>
-------
Note: This table reflects the following:
1 Taxable income equals adjusted gross income ("AGI") less personal
exemptions of $2,500 less the standard deduction of $6,550 on a joint
return or total itemized deductions, whichever is greater. However,
itemized deductions are reduced by 3% of the amount of a taxpayer's AGI
over $114,700. This is reflected in the brackets above by higher effective
federal tax rates. Furthermore, personal exemptions are phased out for the
amount of a taxpayer's AGI over $114,700 for single taxpayers and $172,050
for married taxpayers filing jointly. This latter provision is not
incorporated into the above brackets.
2 The combined effective rate is computed under the assumption that
taxpayers itemize their deductions on their federal income tax returns.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
C-17
<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
PORTFOLIOS OF SECURITIES................................................... A-9
TAX EXEMPT SECURITIES TRUST................................................ B-1
THE TRUSTS................................................................ B-1
OBJECTIVES................................................................ B-1
PORTFOLIO................................................................. B-1
RISK FACTORS.............................................................. B-2
THE UNITS................................................................. B-12
TAXES..................................................................... B-12
EXPENSES AND CHARGES...................................................... B-14
PUBLIC OFFERING............................................................ B-15
OFFERING PRICE............................................................ B-15
METHOD OF EVALUATION...................................................... B-15
DISTRIBUTION OF UNITS..................................................... B-16
MARKET FOR UNITS.......................................................... B-16
EXCHANGE OPTION........................................................... B-16
REINVESTMENT PROGRAMS..................................................... B-17
SPONSOR'S AND UNDERWRITERS' PROFITS....................................... B-17
RIGHTS OF UNIT HOLDERS..................................................... B-17
CERTIFICATES.............................................................. B-17
DISTRIBUTION OF INTEREST AND PRINCIPAL.................................... B-18
REPORTS AND RECORDS....................................................... B-19
REDEMPTION OF UNITS....................................................... B-19
SPONSOR.................................................................... B-20
LIMITATIONS ON LIABILITY.................................................. B-21
RESPONSIBILITY............................................................ B-21
RESIGNATION............................................................... B-21
TRUSTEE.................................................................... B-21
LIMITATIONS ON LIABILITY.................................................. B-21
RESIGNATION............................................................... B-21
EVALUATOR.................................................................. B-22
LIMITATIONS ON LIABILITY.................................................. B-22
RESPONSIBILITY............................................................ B-22
RESIGNATION............................................................... B-22
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT........................... B-23
AMENDMENT................................................................. B-23
TERMINATION............................................................... B-23
LEGAL OPINION.............................................................. B-23
AUDITORS................................................................... B-23
BOND RATINGS............................................................... B-23
FEDERAL TAX FREE VS. TAXABLE INCOME........................................ B-25
THE STATE TRUSTS........................................................... C-1
TAX FREE VS. TAXABLE INCOME................................................ C-15
</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
------------
19,000 UNITS
------------
Prospectus
Dated September 8, 1995
------------
SPONSOR
SMITH BARNEY INC.
388 GREENWICH STREET
23RD FLOOR
NEW YORK, NEW YORK 10013
(800) 223-2532
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
A. The following information relating to the Depositor is incorporated by
reference to the SEC filings indicated and made a part of this Registration
Statement.
<TABLE>
<CAPTION>
SEC FILE OR
IDENTIFICATION NO.
------------------
<S> <C>
I. Bonding Arrangements and Date of Organization of
the Depositor filed pursuant to Items A and B of
Part II of the Registration Statement on Form S-6
under the Securities Act of 1993:
Smith Barney Inc. 2-55436
II. Information as to Officers and Directors of the
Depositor filed 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 (National Association) 13-2633612
</TABLE>
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.
4.1 --Consent of the Evaluator.
5.1 --Consent of KPMG Peat Marwick LLP to the use of their name under the
heading "Auditors" in the Prospectus.
</TABLE>
II-2
<PAGE>
SIGNATURES
The registrant, Tax Exempt Securities Trust, National Trust 211, California
Trust 143, New Jersey Trust 124 and New York Trust 147, 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 8TH DAY OF SEPTEMBER, 1995.
Signatures appear on page II-4.
A majority of the members of the Board of Directors of Smith Barney Inc. has
signed this Registration Statement or Amendment to the Registration Statement
pursuant to Powers of Attorney authorizing the person signing this Registration
Statement or Amendment to the Registration Statement to do so on behalf of such
members.
II-3
<PAGE>
Smith Barney Inc., Depositor
/s/ George S. Michinard, Jr.
By .................................
(GEORGE S. MICHINARD, JR.)
By the following persons*, who
constitute a majority of the
directors of Smith Barney Inc.:
Steven D. Black
James S. Boshart III
Robert A. Case
James Dimon
Robert Druskin
Robert F. Greenhill
Jeffrey B. Lane
Robert H. Lessin
Jack L. Rivkin
William J. Mills, II
Michael B. Panitch
Paul Underwood
/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> 0000943222
<NAME> NATIONAL TRUST 211
<SERIES>
<NUMBER> 1
<NAME> NATIONAL TRUST 211
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-07-1995
<PERIOD-END> SEP-07-1995
<INVESTMENTS-AT-COST> 9781341
<INVESTMENTS-AT-VALUE> 9781341
<RECEIVABLES> 136676
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 20,000
<TOTAL-ASSETS> 9938017
<PAYABLE-FOR-SECURITIES> 136676
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20000
<TOTAL-LIABILITIES> 182416
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10263757
<SHARES-COMMON-STOCK> 10000
<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> 9781341
<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> 10000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9781341
<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> 0000943260
<NAME> CALIFORNIA TRUST 143
<SERIES>
<NUMBER> 1
<NAME> CALIFORNIA TRUST 143
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-07-1995
<PERIOD-END> SEP-07-1995
<INVESTMENTS-AT-COST> 2820915
<INVESTMENTS-AT-VALUE> 2820915
<RECEIVABLES> 26482
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6,000
<TOTAL-ASSETS> 2853397
<PAYABLE-FOR-SECURITIES> 26482
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6000
<TOTAL-LIABILITIES> 139128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2960043
<SHARES-COMMON-STOCK> 3000
<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> 2820915
<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> 3000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2820915
<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> 0000943272
<NAME> NEW JERSEY TRUST 124
<SERIES>
<NUMBER> 1
<NAME> NEW JERSEY TRUST 124
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-07-1995
<PERIOD-END> SEP-07-1995
<INVESTMENTS-AT-COST> 2947461
<INVESTMENTS-AT-VALUE> 2947461
<RECEIVABLES> 52649
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6000
<TOTAL-ASSETS> 3006110
<PAYABLE-FOR-SECURITIES> 52649
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6000
<TOTAL-LIABILITIES> 145369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3092830
<SHARES-COMMON-STOCK> 3000
<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> 2947461
<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> 3000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2947461
<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> 0000943224
<NAME> NEW YORK TRUST 147
<SERIES>
<NUMBER> 1
<NAME> NEW YORK TRUST 147
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-07-1995
<PERIOD-END> SEP-07-1995
<INVESTMENTS-AT-COST> 2925620
<INVESTMENTS-AT-VALUE> 2925620
<RECEIVABLES> 31891
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 6000
<TOTAL-ASSETS> 2963511
<PAYABLE-FOR-SECURITIES> 31891
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 6000
<TOTAL-LIABILITIES> 144292
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3069912
<SHARES-COMMON-STOCK> 3000
<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> 2925620
<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> 3000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2925620
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 3.1
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
September 7, 1995
Tax Exempt Securities Trust
National Trust 211
California Trust 143
New Jersey Trust 124
New York Trust 147
Smith Barney Inc.
Unit Trust Department
388 Greenwich Street
23rd Floor
New York, NY 10013
Dear Sirs:
We have acted as special counsel for you, as sponsor (the "Sponsor") of the
National Trust 211, the California Trust 143, the New Jersey Trust 124 and the
New York Trust 147 of Tax Exempt Securities Trust (the "Trusts"), in connection
with the issuance of units of fractional undivided interest in the Trusts (the
"Units") in accordance with the Trust Indenture and Agreement and related
Reference Trust Agreement relating to the Trusts (the "Indenture").
We have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of such documents and instruments as
we have deemed necessary or advisable for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that (i) the execution and
delivery of the Indenture and the issuance of the Units have been duly
authorized by the Sponsor and (ii) the Units, when duly issued and delivered by
the Sponsor and the Trustee in accordance with the Indenture, will be legally
issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 3.1 to the
Registration Statement relating to the Units filed under the Securities Act of
1933 and to the use of our name in such Registration Statement and in the
related prospectus under the headings "Taxes", "New York Taxes" and "Legal
Opinion".
Very truly yours,
Davis Polk & Wardwell
<PAGE>
EXHIBIT 4.1
KENNY S&P EVALUATION SERVICES
A Division of J.J. Kenny Co., Inc.
65 Broadway
New York, New York 10006-2511
Telephone: 212/770-4900
Frank A. Ciccotto, Jr.
Vice President
September 7, 1995
Smith Barney Inc.
388 Greenwich St., 23rd Floor
New York, N.Y. 10013
The Chase Manhattan Bank (National Association)
Unit Trust Division
770 Broadway, 6th Floor
New York, N.Y. 10003
Re: Tax-Exempt Securities Trust
National Trust 211
California Trust 143
New Jeresy Trust 124
New York Trust 147
Gentlemen:
We have examined Registration Statement File Nos. 33-61261, 33-62033, 33-
59179 and 33-62055 (respectively) for the above-captioned trusts. We hereby
acknowledge that Kenny S&P Evaluation Services, a division of J.J. Kenny Co.,
Inc. is currently acting as the evaluator for the trusts. We hereby consent to
the use in the Registration Statement of the reference to Kenny S&P Evaluation
Services, a division of J.J. Kenny Co., Inc. as evaluator.
In addition, we hereby confirm that the ratings indicated in the Registration
Statement for the respective bonds comprising the trust portfolios are the
ratings indicated in our KENNYBASE database.
You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.
Sincerely,
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, National Trust 211, California Trust 143, New
Jersey Trust 124 and New York Trust 147:
We consent to the use of our report dated September 7, 1995 included herein
and to the reference to our firm under the heading "Auditors" in the
Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
September 7, 1995
