TAX EXEMPT SECURITIES TRUST NEW YORK TRUST 152, 497, 1996-02-20

TAX EXEMPT SECURITIES TRUST NEW YORK TRUST 152
497, 1996-02-20

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<PAGE>

---------------------------------------------------------
TAX EXEMPT
SECURITIES
TRUST
New Jersey Trust 125 New York Trust 152
- ---------------------- ---------------------------------------------------
10,000 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 New Jersey Trust 125 and New York Trust 152 (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 February 14, 1996, the Public
Offering Price per Unit (including the sales charge) would have been $1,043.83
for the New Jersey Trust and $1,041.82 for the New York Trust. 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 February 15, 1996
<PAGE>

TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION AS OF FEBRUARY 14, 1996 +

SPONSOR RECORD DATES

Smith Barney Inc. The first day of each month,
commencing March, 1996

TRUSTEE

DISTRIBUTION DATES**
The Chase Manhattan Bank
(National Association)

The fifteenth day of each
month, commencing March 15,
1996

EVALUATOR

Kenny S & P Evaluation Services,a EVALUATION TIME
division of J.J. Kenny Co., Inc.

As of 1:00 P.M. on the Date of
Deposit. Thereafter, as of
4:00 P.M. New York Time.

DATE OF DEPOSIT AND OF TRUST
AGREEMENT

February 14, 1996 EVALUATOR'S FEE

MANDATORY TERMINATION DATE* The Evaluator will receive a
fee of $.29 per bond per
Each Trust will terminate on the evaluation. (See Part B,
date of maturity, redemption, "Evaluator--Responsibility"
sale or other disposition of the and "Public Offering--Offering
last Bond held in the Trust. Price".)

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 $2.34 and $2.39 for the New
Jersey Trust and New York Trust, respectively, will be made on March 15,
1996.
***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>
NEW JERSEY NEW YORK
TRUST 125 TRUST 152
---------- ----------
<S> <C> <C>
Principal Amount of Bonds in Trust..................... $2,250,000 $7,750,000
Number of Units........................................ 2,250 7,750
Principal Amount of Bonds in Trust per Unit............ $ 1,000 $ 1,000
Fractional Undivided Interest in Trust per Unit........ 1/2,250 1/7,750
Minimum Value of Trust:
Trust Agreement may be Terminated if Principal Amount
is less than........................................ $1,125,000 $3,875,000
Calculation of Public Offering Price per Unit*:
Aggregate Offering Price of Bonds in Trust........... $2,238,240 $7,694,620
========== ==========
Divided by Number of Units........................... $ 994.77 $ 992.85
Plus: Sales Charge (4.70% of the Public Offering
Price).............................................. $ 49.06 $ 48.97
---------- ----------
Public Offering Price per Unit....................... $ 1,043.83 $ 1,041.82
Plus: Accrued Interest*.............................. $ 1.02 $ 1.04
---------- ----------
Total.............................................. $ 1,044.85 $ 1,042.86
========== ==========
Sponsor's Initial Repurchase Price per Unit (per Unit
Offering
Price of Bonds)*..................................... $ 994.77 $ 992.85
Approximate Redemption Price per Unit (per Unit Bid
Price of Bonds)**................................... $ 990.66 $ 985.07
---------- ----------
Difference Between per Unit Offering and Bid Prices of
Bonds................................................. $ 4.11 $ 7.78
========== ==========
Calculation of Estimated Net Annual Income per Unit:
Estimated Annual Income per Unit..................... $ 55.12 $ 56.30
Less: Estimated Trustee's Annual Fee***.............. $ 1.22 $ 1.23
Less: Organizational Expenses****.................... $ .40 $ .40
Less: Other Estimated Annual Expenses................ $ .82 $ .79
---------- ----------
Estimated Net Annual Income per Unit................. $ 52.68 $ 53.88
========== ==========
Calculation of Monthly Income Distribution per Unit:
Estimated Net Annual Income per Unit................ $ 52.68 $ 53.88
Divided by 12........................................ $ 4.39 $ 4.49
Accrued interest from the day after the Date of Deposit
to the first record date**.......................... $ 2.34 $ 2.39
First distribution per unit............................ $ 2.34 2.39
Daily Rate (360-day basis) of Income Accrual per Unit.. $ .1463 $ .1496
Estimated Current Return based on Public Offering
Price*****............................................ 5.05% 5.17%
Estimated Long-Term Return*****........................ 4.83% 5.13%
</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
with 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

NEW JERSEY TRUST 125

The Portfolio of the New Jersey Trust contains 7 issues of Bonds of issuers
located in the State of New Jersey and the Commonwealth of Puerto Rico. Of the
Bonds in this Trust, one was issued by an issuer in the Commonwealth of Puerto
Rico (representing 14.0%* of the Bonds in the Trust) and was issued to finance
transportation facilities. All of the issues are payable from the income of
specific projects or authorities and are not supported by the issuer's power
to levy taxes. Although income to pay such Bonds may be derived from more than
one source, the primary sources of such income and the percentage of the Bonds
in this Trust deriving income from such sources are as follows: hospital and
health care facilities: 50.0%; educational facilities: 18.5%; recreational
facilities: 17.5%. 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.) 21.5% of the Bonds in this Trust are insured as to
timely payment of principal and interest by certain insurance companies (FSA,
21.5%) (see Part B, "Tax Exempt Securities Trust--Risk Factors--Insurance").
Five Bonds in this Trust have been issued with an "original issue discount."
(See Part B, "Taxes.") The average life to maturity of the Bonds in the New
Jersey Trust is 25.3 years.

As of the Date of Deposit, 52.2% of the Bonds in this Trust are rated by
Standard & Poor's (38.2% rated AAA, and 14.0% rated A); 36.0% are rated by
Moody's (17.5% rated Aa and 18.5% rated A); 11.8% 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 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 152

The Portfolio of the New York Trust contains 18 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 9.5%* of the Bonds in the Trust) and was issued to finance
transportation facilities. Three of the issues (representing approximately
9.8% 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: 33.6%; housing
facilities: 3.6%; pollution control facilities: 2.4%; educational facilities:
21.1%; correctional facilities: 10.9%; sales tax: 9.1%; 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.) 5.7% of the
Bonds in this Trust are insured as to timely payment of principal and interest
by certain insurance companies (CGIC, 3.3%; and MBIA, 2.4%) (see Part B, "Tax
Exempt Securities Trust--Risk Factors--Insurance"). Thirteen 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
28.0 years.

As of the Date of Deposit, 45.4% of the Bonds in this Trust are rated by
Standard & Poor's (15.1% rated AAA, 11.7% rated AA and 18.6% rated A); 54.6%
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.

25.7% 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-4
<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
---------------------------------------

NEW JERSEY TRUST 125 NEW YORK TRUST 152
-------------------- ------------------
<S> <C> <C>
Smith Barney Inc. ..................... 1,650 6,850
1345 Avenue of the Americas
New York, New York 10105
Gruntal & Co. Incorporated............. 100 250
14 Wall Street
New York, New York 10005
Oppenheimer & Co., Inc. ............... 100 250
Oppenheimer Tower
One World Financial Center
New York, New York 10281
Advest Inc. ........................... 100 100
One Commercial Plaza
280 Trumbull Street
Hartford, Connecticut 06103
Roosevelt & Cross, Inc. ............... -- 100
20 Exchange Place
New York, New York 10005
Fidelity Capital Markets............... 100 --
164 Northern Avenue
Boston, MA 02210
Pershing (Division of Donaldson, Lufkin
& Jenrette Securities Corporation).... 100 --
One Pershing Plaza
Jersey City, New Jersey 07399
Janney Montgomery Scott Inc. .......... 100 --
1801 Market Street
Philadelphia, Pennsylvania 19103
Samuel A. Ramirez...................... -- 100
61 Broadway
New York, New York 10008
U.S. Clearing Corp. ................... -- 100
26 Broadway
New York, New York 10004
----- -----
Total.................................. 2,250 7,750
===== =====
</TABLE>

A-5
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Sponsor, Trustee and Unit Holders of Tax Exempt Securities Trust, New
Jersey Trust 125 and New York Trust 152:

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, New Jersey Trust 125 and New York Trust 152 as of
February 14, 1996. These financial statements are the responsibility of the
Trustee (see note 6 to the statements of financial condition). Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of financial condition are
free of material misstatement. An audit of a statement of financial condition
includes examining, on a test basis, evidence supporting the amounts and
disclosures in that statement of financial condition. Our procedures included
confirmation with the Trustee of an irrevocable letter of credit deposited on
February 14, 1996 for the purchase of securities, as shown in the statements of
financial condition and portfolios of securities. An audit of a statement of
financial condition also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
statement of financial condition presentation. We believe that our audits of
the statements of financial condition provide a reasonable basis for our
opinion.

In our opinion, the statements of financial condition referred to above
present fairly, in all material respects, the financial position of each of the
respective trusts constituting Tax Exempt Securities Trust, New Jersey Trust
125 and New York Trust 152 as of February 14, 1996, in conformity with
generally accepted accounting principles.

KPMG PEAT MARWICK LLP

New York, New York
February 14, 1996

A-6
<PAGE>

TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DATE OF DEPOSIT, FEBRUARY 14, 1996

<TABLE>
<CAPTION>
TRUST PROPERTY
---------------------
NEW JERSEY NEW YORK
TRUST 125 TRUST 152
---------- ----------
<S> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by let-
ter of credit (1)..................................... $2,238,240 $7,694,620
Accrued interest through the Date of Deposit on under-
lying bonds (1)(2)...................................... 17,805 92,525
Organizational costs (3)................................. 4,500 15,500
---------- ----------
Total................................................ $2,260,545 $7,802,645
========== ==========
<CAPTION>
LIABILITIES AND
INTEREST
OF UNIT HOLDERS
---------------------
<S> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on under-
lying bonds (1)(2).................................... $ 17,805 $ 92,525
Accrued expenses (3)................................... 4,500 15,500
---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest outstanding (New
Jersey Trust 125: 2,250; New York Trust 152: 7,750)
Cost to investors (4)................................. 2,348,630 8,074,119
Less--Gross underwriting commission (5)............... 110,390 379,499
---------- ----------
Net amount applicable to investors.................... 2,238,240 7,694,620
---------- ----------
Total................................................ $2,260,545 $7,802,645
========== ==========
</TABLE>
(1) Aggregate cost to each Trust of the Bonds listed under the Portfolios of
Securities on the immediately following pages is based on offering prices
as of 1:00 P.M. on February 14, 1996, the Date of Deposit, determined by
the Evaluator on the basis set forth in Part B, "Public Offering--Offering
Price." Morgan Guaranty Trust Company of New York issued an irrevocable
letter of credit in the aggregate principal amount of $11,000,000 which was
deposited with the Trustee for the purchase of $10,000,000 principal amount
of Bonds pursuant to contracts to purchase such Bonds at the Sponsor's
aggregate cost of $9,932,860 plus $110,330 representing accrued interest
thereon through the Date of Deposit.
(2) The Indenture provides that the Trustee will advance amounts equal to the
accrued interest on the underlying securities of each Trust (net of accrued
expenses) through the Date of Deposit and that such amounts will be
distributed to the Sponsor as Unit holder of record on such date, as set
forth in Part B, "Rights of Unit Holders--Distribution of Interest and
Principal."
(3) Organizational costs to be paid by the Trusts have been deferred and will
be amortized over five years.
(4) Aggregate public offering price (exclusive of interest) computed on 2,250
and 7,750 Units of New Jersey Trust and New York Trust, respectively, on
the basis set forth in Part B, "Public Offering--Offering Price."
(5) Sales charge of 4.70% computed on 2,250 and 7,750 Units of 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-7
<PAGE>

TAX EXEMPT SECURITIES TRUST
NEW JERSEY TRUST 125--PORTFOLIO OF SECURITIES AS OF FEBRUARY 14, 1996

The Notes following the Portfolios are an integral part of each Portfolio of
Securities.

A-8
<PAGE>

TAX EXEMPT SECURITIES TRUST
NEW YORK TRUST 152--PORTFOLIO OF SECURITIES AS OF FEBRUARY 14, 1996

<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. $250,000 The City of New York, A-** 2/15/05 @ 101 $249,682 6.010% $15,000
General Obligation SF 2/15/17 @ 100
Bonds, 6.00% Due
2/15/2020
2. 250,000 The City of New York, A-** 2/1/06 @ 101.5 252,632 6.000 15,312
General Obligation SF 2/1/20 @ 100
Bonds, 6.125% Due
2/1/2025
3. 250,000 The City of New York, A-** 2/15/05 @ 101 249,657 6.010 15,000
General Obligation SF 2/15/21 @ 100
Bonds, 6.00% Due
2/15/2025
4. 275,000 New York City Housing AA 5/1/03 @ 102 279,868 5.600 16,087
Development Corporation, SF 5/1/14 @ 100
Multi-Family Housing
Revenue Bonds, 5.85% Due
5/1/2026
5. 705,000 Dormitory Authority of AAA 2/1/06 @ 102 723,140 5.700 42,300
the State of New York, SF 2/1/06 @ 100
The Bethel-Springvale
Nursing Home, Inc., FHA-
Insured Mortgage Revenue
Bonds, 6.00% Due
2/1/2035
6. 200,000 Dormitory Authority of A** 7/1/06 @ 102 199,800 5.758 11,500
the State of New York, SF 7/1/18 @ 100
Department of Health of
the State of New York
Revenue Bonds, 5.75% Due
7/1/2017
7. 800,000 Dormitory Authority of A** 7/1/06 @ 102 782,832 5.650 44,000
the State of New York, SF 7/1/18 @ 100
Department of Health of
the State of New York
Revenue Bonds, 5.50% Due
7/1/2025
8. 200,000 Dormitory Authority of AA 8/1/05 @ 102 205,826 5.700 12,100
the State of New York, SF 2/1/12 @ 100
Our Lady of Consolation
Geriatric Care Center,
FHA-Insured Mortgage,
Nursing Home Revenue
Bonds, 6.05%
Due 8/1/2035
9. 405,000 Dormitory Authority of AA 8/1/05 @ 102 416,798 5.700 24,502
the State of New York, SF 2/1/12 @ 100
Resurrection Rest Home,
FHA-Insured Mortgage
Nursing Home Revenue
Bonds, 6.05% Due
8/1/2035
10. 710,000 Dormitory Authority of A** 5/15/00 @ 100 660,385 5.500 35,500
the State of New York,
State University
Educational Facilities
Revenue Bonds, 5.00% Due
5/15/2018
11. 475,000 Dormitory Authority of A** 5/15/04 @ 100 474,525 5.756 27,312
the State of New York, SF 5/15/21 @ 100
State University
Educational Facilities
Revenue Bonds, 5.75% Due
5/15/2024
12. 500,000 Dormitory Authority of A** 7/1/04 @ 102 499,500 5.633 28,125
the State of New York SF 7/1/11 @ 100
Revenue Bonds, Upstate
Community Colleges,
5.625% Due 7/1/2014
13. 175,000 New York State Energy AAA 4/1/04 @ 102 185,173 5.300 10,587
Research and Development
Authority, Pollution
Control Refunding
Revenue Bonds, New York
State Electric & Gas
Corporation Project,
MBIA Insured, 6.05% Due
4/1/2034
14. 700,000 New York Local A 4/1/03 @ 102 699,300 5.507 38,500
Government Assistance SF 4/1/17 @ 100
Corporation Refunding
Bonds, 5.50% Due
4/1/2021
15. 250,000 New York State Medical AAA 8/15/03 @ 102 249,750 5.707 14,250
Care Facilities Finance
Agency, St. Luke's-
Roosevelt Hospital
Center FHA-Insured
Mortgage Revenue Bonds
CapMac Insured, 5.70%
Due 2/15/2029
</TABLE>

A-9
<PAGE>

TAX EXEMPT SECURITIES TRUST
NEW YORK, TRUST 152--PORTFOLIO OF SECURITIES AS OF FEBRUARY 15, 1996

The Notes following the Portfolios are an integral part of each Portfolio of
Securities.

A-10
<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 January 3,
1996, through February 14, 1996, with the final settlement date on February
22, 1996. The Profit to the Sponsor on Deposit totals $14,547 and $88,297
for the 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 New Jersey
Trust and New York Trust on February 14, 1996, was $2,228,990 and
$7,634,330, respectively.

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PROSPECTUS--PART B:
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NOTE THAT PART B OF THIS PROSPECTUS MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED
BY PART A.
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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

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<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

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<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
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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.

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All single family mortgage revenue bonds and certain multi-family housing
revenue bonds are prepayable over the life of the underlying mortgage or
mortgage pool, and therefore the average life of housing obligations cannot be
determined. However, the average life of these obligations will ordinarily be
less than their stated maturities. Single-family issues are subject to
mandatory redemption in whole or in part from prepayments on underlying
mortgage loans; mortgage loans are frequently partially or completely prepaid
prior to their final stated maturities as a result of events such as declining
interest rates, sale of the mortgaged premises, default, condemnation or
casualty loss. Multi-family issues are characterized by mandatory redemption at
par upon the occurrence of monetary defaults or breaches of covenants by the
project operator. Additionally, housing obligations are generally subject to
mandatory partial redemption at par to the extent that proceeds from the sale
of the obligations are not allocated within a stated period (which may be
within a year of the date of issue). To the extent that these obligations were
valued at a premium when a Holder purchased Units, any prepayment at par would
result in a loss of capital to the Holder and, in any event, reduce the amount
of income that would otherwise have been paid to Holders.

The tax exemption for certain housing revenue bonds depends on qualification
under Section 143 of the Internal Revenue Code of 1986, as amended (the
"Code"), in the case of single family mortgage revenue bonds or Section
142(a)(7) of the Code or other provisions of Federal law in the case of certain
multi-family housing revenue bonds (including Section 8 assisted bonds). These
sections of the Code or other provisions of Federal law contain certain ongoing
requirements, including requirements relating to the cost and location of the
residences financed with the proceeds of the single family mortgage revenue
bonds and the income levels of tenants of the rental projects financed with the
proceeds of the multi-family housing revenue bonds. While the issuers of the
bonds and other parties, including the originators and servicers of the single-
family mortgages and the owners of the rental projects financed with the multi-
family housing revenue bonds, generally covenant to meet these ongoing
requirements and generally agree to institute procedures designed to ensure
that these requirements are met, there can be no assurance that these ongoing
requirements will be consistently met. The failure to meet these requirements
could cause the interest on the bonds to become taxable, possibly retroactively
to the date of issuance, thereby reducing the value of the bonds, subjecting
the Holders to unanticipated tax liabilities and possibly requiring the Trustee
to sell the bonds at reduced values. Furthermore, any failure to meet these
ongoing requirements might not constitute an event of default under the
applicable mortgage or permit the holder to accelerate payment of the bond or
require the issuer to redeem the bond. In any event, where the mortgage is
insured by the Federal Housing Administration, its consent may be required
before insurance proceeds would become payable to redeem the mortgage bonds.

POWER FACILITY BONDS. The ability of utilities to meet their obligations with
respect to revenue bonds issued on their behalf is dependent on various
factors, including the rates they may charge their customers, the demand for a
utility's services and the cost of providing those services. Utilities, in
particular investor-owned utilities, are subject to extensive regulations
relating to the rates which they may charge customers. Utilities can experience
regulatory, political and consumer resistance to rate increases. Utilities
engaged in long-term capital projects are especially sensitive to regulatory
lags in granting rate increases. Any difficulty in obtaining timely and
adequate rate increases could adversely affect a utility's results of
operations.

The demand for a utility's services is influenced by, among other factors,
competition, weather conditions and economic conditions. Electric utilities,
for example, have experienced increased competition as a result of the
availability of other energy sources, the effects of conservation on the use of
electricity, self-generation by industrial customers and the generation of
electricity by co-generators and other independent power producers. Also,
increased competition will result if federal regulators determine that
utilities must open their transmission lines to competitors. Utilities which
distribute natural gas also are subject to competition from alternative fuels,
including fuel oil, propane and coal.

The utility industry is an increasing cost business making the cost of
generating electricity more expensive and heightening its sensitivity to
regulation. A utility's costs are influenced by the utility's cost of capital,
the availability and cost of fuel and other factors. In addition, natural gas
pipeline and distribution companies have incurred increased costs as a result
of long-term natural gas purchase contracts containing "take or pay" provisions
which require that they pay for natural gas even if natural gas is not taken by
them. There can be no assurance that a utility will be able to pass on these
increased costs to customers through increased rates. Utilities incur
substantial capital expenditures for plant and equipment. In the future they
will also incur increasing capital and operating expenses to comply with
environmental legislation such as the Clean Air Act of 1990, and other energy,
licensing and other laws and regulations relating to, among other things, air
emissions, the quality of drinking water, waste water discharge, solid and
hazardous substance handling and disposal, and siting and licensing of
facilities. Environmental legislation and regulations are changing rapidly and
are the subject of current public policy debate and legislative proposals. It
is increasingly likely that some or many utilities will be subject to more
stringent environmental standards in the future that could result in
significant capital expenditures. Future legislation and regulation could
include, among other things, regulation of so-called electromagnetic fields
associated with electric transmission and distribution lines as well as
emissions of carbon dioxide and other so-called greenhouse gases associated
with the burning of fossil fuels. Compliance with these requirements may limit
a utility's operations or require substantial investments in new equipment and,
as a result, may adversely affect a utility's results of operations.

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The electric utility industry in general is subject to various external
factors including (a) the effects of inflation upon the costs of operation and
construction, (b) substantially increased capital outlays and longer
construction periods for larger and more complex new generating units, (c)
uncertainties in predicting future load requirements, (d) increased financing
requirements coupled with limited availability of capital, (e) exposure to
cancellation and penalty charges on new generating units under construction,
(f) problems of cost and availability of fuel, (g) compliance with rapidly
changing and complex environmental, safety and licensing requirements, (h)
litigation and proposed legislation designed to delay or prevent construction
of generating and other facilities, (i) the uncertain effects of conservation
on the use of electric energy, (j) uncertainties associated with the
development of a national energy policy, (k) regulatory, political and consumer
resistance to rate increases and (l) increased competition as a result of the
availability of other energy sources. These factors may delay the construction
and increase the cost of new facilities, limit the use of, or necessitate
costly modifications to, existing facilities, impair the access of electric
utilities to credit markets, or substantially increase the cost of credit for
electric generating facilities. The Sponsor cannot predict at this time the
ultimate effect of such factors on the ability of any issuers to meet their
obligations with respect to Bonds.

The National Energy Policy Act ("NEPA"), which became law in October, 1992,
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.

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WATER AND SEWER REVENUE BONDS. Water and sewer bonds are generally payable
from user fees. The ability of state and local water and sewer authorities to
meet their obligations may be affected by failure of municipalities to utilize
fully the facilities constructed by these authorities, economic or population
decline and resulting decline in revenue from user charges, rising construction
and maintenance costs and delays in construction of facilities, impact of
environmental requirements, failure or inability to raise user charges in
response to increased costs, the difficulty of obtaining or discovering new
supplies of fresh water, the effect of conservation programs and the impact of
"no growth" zoning ordinances. In some cases this ability may be affected by
the continued availability of Federal and state financial assistance and of
municipal bond insurance for future bond issues.

UNIVERSITY AND COLLEGE BONDS. The ability of universities and colleges to
meet their obligations is dependent upon various factors, including the size
and diversity of their sources of revenues, enrollment, reputation, management
expertise, the availability and restrictions on the use of endowments and other
funds, the quality and maintenance costs of campus facilities, and, in the case
of public institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education. The
institution's ability to maintain enrollment levels will depend on such factors
as tuition costs, demographic trends, geographic location, geographic diversity
and quality of the student body, quality of the faculty and the diversity of
program offerings.

Legislative or regulatory action in the future at the Federal, state or local
level may directly or indirectly affect eligibility standards or reduce or
eliminate the availability of funds for certain types of student loans or grant
programs, including student aid, research grants and work-study programs, and
may affect indirect assistance for education.

LEASE RENTAL BONDS. Lease rental bonds are issued for the most part by
governmental authorities that have no taxing power or other means of directly
raising revenues. Rather, the authorities are financing vehicles created solely
for the construction of buildings (administrative offices, convention centers
and prisons, for example) or the purchase of equipment (police cars and
computer systems, for example) that will be used by a state or local government
(the "lessee"). Thus, the bonds are subject to the ability and willingness of
the lessee government to meet its lease rental payments which include debt
service on the bonds. Willingness to pay may be subject to changes in the views
of citizens and government officials as to the essential nature of the finance
project. Lease rental bonds are subject, in almost all cases, to the annual
appropriation risk, i.e., the lessee government is not legally obligated to
budget and appropriate for the rental payments beyond the current fiscal year.
These bonds are also subject to the risk of abatement in many states--rental
bonds cease in the event that damage, destruction or condemnation of the
project prevents its use by the lessee. (In these cases, insurance provisions
and reserve funds designed to alleviate this risk become important credit
factors). In the event of default by the lessee government, there may be
significant legal and/or practical difficulties involved in the reletting or
sale of the project. Some of these issues, particularly those for equipment
purchase, contain the so-called "substitution safeguard", which bars the lessee
government, in the event it defaults on its rental payments, from the purchase
or use of similar equipment for a certain period of time. This safeguard is
designed to insure that the lessee government will appropriate the necessary
funds even though it is not legally obligated to do so, but its legality
remains untested in most, if not all, states.

CAPITAL IMPROVEMENT FACILITY BONDS. The Portfolio of a Trust may contain
Bonds which are in the capital improvement facilities category. Capital
improvement bonds are bonds issued to provide funds to assist political
subdivisions or agencies of a state through acquisition of the underlying debt
of a state or local political subdivision or agency which bonds are secured by
the proceeds of the sale of the bonds, proceeds from investments and the
indebtedness of a local political subdivision or agency. The risks of an
investment in such bonds include the risk of possible prepayment or failure of
payment of proceeds on and default of the underlying debt.

SOLID WASTE DISPOSAL BONDS. Bonds issued for solid waste disposal facilities
are generally payable from tipping fees and from revenues that may be earned by
the facility on the sale of electrical energy generated in the combustion of
waste products. The ability of solid waste disposal facilities to meet their
obligations depends upon the continued use of the facility, the successful and
efficient operation of the facility and, in the case of waste-to-energy
facilities, the continued ability of the facility to generate electricity on a
commercial basis. All of these factors may be affected by a failure of
municipalities to fully utilize the facilities, an insufficient supply of waste
for disposal due to economic or population decline, rising construction and
maintenance costs, any delays in construction of facilities, lower-cost
alternative modes of waste processing and changes in environmental regulations.
Because of the relatively short history of this type of financing, there may be
technological risks involved in the satisfactory construction or operation of
the projects exceeding those associated with most municipal enterprise
projects. Increasing environmental regulation on the federal, state and local
level has a significant impact on waste disposal facilities. While regulation
requires more waste producers to use waste disposal facilities, it also imposes
significant costs on the facilities. These costs include compliance with
frequently changing and complex regulatory requirements, the cost of obtaining
construction and operating permits, the cost of conforming to prescribed and
changing equipment standards and required methods of operation and, for
incinerators or waste-to-energy facilities, the cost of disposing of the waste
residue that remains after the disposal process in an environmentally safe
manner. In addition, waste disposal facilities frequently face substantial
opposition by environmental groups and officials to their location and
operation, to the possible adverse effects upon the public health and the
environment that may be caused by wastes disposed of at the facilities and to
alleged improper operating

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procedures. Waste disposal facilities benefit from laws which require waste to
be disposed of in a certain manner but any relaxation of these laws could cause
a decline in demand for the facilities' services. Finally, waste-to-energy
facilities are concerned with many of the same issues facing utilities insofar
as they derive revenues from the sale of energy to local power utilities (see
Power Facility Bonds above).

MORAL OBLIGATION BONDS. The Trust may also include "moral obligation" bonds.
If an issuer of moral obligation bonds is unable to meet its obligations, the
repayment of the bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question. Even though the state may be called on
to restore any deficits in capital reserve funds of the agencies or authorities
which issued the bonds, any restoration generally requires appropriation by the
state legislature and accordingly does not constitute a legally enforceable
obligation or debt of the state. The agencies or authorities generally have no
taxing power.

REFUNDED BONDS. Refunded Bonds are typically secured by direct obligations of
the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally noncallable prior to maturity or the predetermined redemption date.
In a few isolated instances to date, however, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.

AIRPORT, PORT AND HIGHWAY REVENUE BONDS. Certain facility revenue bonds are
payable from and secured by the revenues from the ownership and operation of
particular facilities, such as airports (including airport terminals and
maintenance facilities), bridges, marine terminals, turnpikes and port
authorities. For example, the major portion of gross airport operating income
is generally derived from fees received from signatory airlines pursuant to use
agreements which consist of annual payments for airport use, occupancy of
certain terminal space, facilities, service fees, concessions and leases.
Airport operating income may therefore be affected by the ability of the
airlines to meet their obligations under the use agreements. The air transport
industry is experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased aviation fuel costs,
deregulation, traffic constraints, the recent recession and other factors. As a
result, several airlines 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.

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CONVENTION FACILITY BONDS. The Portfolio of a Trust may contain Bonds of
issuers in the convention facilities category. Bonds in the convention
facilities category include special limited obligation securities issued to
finance convention and sports facilities payable from rental payments and
annual governmental appropriations. The governmental agency is not obligated to
make payments in any year in which the monies have not been appropriated to
make such payments. In addition, these facilities are limited use facilities
that may not be used for purposes other than as convention centers or sports
facilities.

PUERTO RICO. 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

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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

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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 income taxes. Depending
on their state of residence, Holders may be subject to state and local
taxation and should consult their own tax advisers in this regard.

* * * * *

Interest on certain tax-exempt bonds issued after August 7, 1986 will be a
preference item for purposes of the alternative minimum tax ("AMT"). The
Sponsor believes that interest (including any original issue discount) on the
Bonds should not be subject to the AMT for individuals or corporations under
this rule. A corporate Holder should be aware, however, that the accrual or
receipt of tax-exempt interest not subject to the AMT may give rise to an
alternative minimum tax liability (or increase an existing liability) because
the interest income will be included in the corporation's "adjusted current
earnings" for purposes of the adjustment to alternative minimum taxable income
required by Section 56(g) of the Code and will be taken into account for
purposes of the environmental tax on corporations under Section 59A of the
Code, which is based on an alternative minimum taxable income.

In addition, interest on the Bonds must be taken into consideration in
computing the portion, if any, of social security benefits that will be
included in an individual's gross income and subject to Federal income tax.
Holders are urged to consult their own tax advisers concerning an investment in
Units.

At the time of issuance of each Bond, an opinion relating to the validity of
the Bond and to the exemption of interest thereon from regular Federal income
taxes was or will be rendered by bond counsel. Neither the Sponsor nor Davis
Polk & Wardwell have made or will make any review of the proceedings relating
to the issuance of the Bonds or the basis for these opinions. The tax exemption
is dependent upon the issuer's (and other users') compliance with certain
ongoing requirements, and the opinion of bond counsel assumes that these
requirements will be complied with. However, there can be no assurance that the
issuer (and other users) will comply with these requirements, in which event
the interest on the Bond could be determined to be taxable retroactively to the
date of issuance.

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

B-13
<PAGE>

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
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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 The
Chase Manhattan Bank (National Association), pursuant to normal banking
procedures. The Trustee is entitled to the benefit of any reasonable cash
balances in the Income and Principal Accounts. Because of the varying interest
payment dates of the Bonds comprising a Trust Portfolio, accrued interest at
any point in time will be greater than the amount of interest actually received
by a Trust and distributed to Unit holders. This excess accrued but
undistributed interest amount will be added to the value of the units on any
purchase made after the Date of Deposit. If a Unit holder sells all or a
portion of his Units a portion of his sale proceeds will be allocable to his
proportionate share of the accrued interest. Similarly, if a Unit holder
redeems all or a portion of his Units, the Redemption Price per Unit which he
is entitled to receive from the Trustee will also include his accrued interest
on the Bonds. (See "Rights of Unit Holders--Redemption of Units--Computation of
Redemption Price per Unit.") The Trustee is also entitled to withdraw from the
Interest Account, 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

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<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

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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.

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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 officer 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."

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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.

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.

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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

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.
- -------
+As described by the rating agencies.

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MOODY'S

A brief description of the applicable Moody's rating symbols and their
meanings is as follows:

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. Aa bonds are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Rating symbols may include numerical modifiers "1," "2," or "3." The
numerical modifier "1" indicates that the security ranks at the high end, "2"
in the mid-range, and "3" nearer the low end of the generic category. These
modifiers of rating symbols "Aa," "A" and "Baa" are to give investors a more
precise indication of relative debt quality in each of the historically defined
categories.

FITCH

AAA--These bonds are considered to be investment grade and of the highest
quality. The obligor has an extraordinary ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--These bonds are considered to be investment grade and of high quality.
The obligor's ability to pay interest and repay principal, while very strong,
is somewhat less than for AAA rated securities or more subject to possible
change over the term of the issue.

A--These bonds are considered to be investment grade and of good quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.

BBB--These bonds are considered to be investment grade and of satisfactory
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however are more likely to weaken this ability than bonds with
higher ratings.

A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.

DUFF & PHELPS

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA--High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.

A--Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.

A "+" or a "-" sign after a rating symbol indicates relative standing in its
rating.

B-24
<PAGE>

FEDERAL TAX FREE VS. TAXABLE INCOME

This table shows the approximate yields which taxable securities must earn in
various income brackets to produce, after Federal income tax, returns
equivalent to specified tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the entire
amount of any increase or decrease in his 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> <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.

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

C-1
<PAGE>

his recommended expenditures and sources of anticipated revenue to the
legislature, which reviews the Governor's Budget Message and submits an
appropriations bill to the Governor for his signature by July 1 of each year.
At the time of signing the bill, the Governor may revise appropriations or
anticipated revenues. That action can be reversed by a two-thirds vote of each
House. No supplemental appropriation may be enacted after adoption of the act,
except where there are sufficient revenues on hand or anticipated, as certified
by the Governor, to meet the appropriation. Finally, the Governor may, during
the course of the year, prevent the expenditure of various appropriations when
revenues are below those anticipated or when he determines that such
expenditure is not in the best interest of the State.

One of the major reasons for cautious optimism is found in the construction
industry. Total construction contracts awarded in New Jersey have turned
around, rising by 11.8% for the first two months of 1995 compared with 1994. By
far, the largest boost came from residential construction awards which
increased by 32.8% in 1995 compared with 1994. In addition, non-residential
building construction awards have turned around, posting a 2.3% gain from 1994.
Non-building construction awards increased approximately 12% in the first two
months of 1995 compared with the same period in 1994.

In addition to increases in construction contract awards, another reason for
cautious optimism is rising new light truck registrations. New passenger car
registrations issued during 1994 were virtually unchanged in New Jersey from a
year earlier. However, registrations of new light trucks and vans (up to 10,000
lbs.) advanced strongly in 1994 increasing 19% during 1994. Retail sales for
1994 were up 7.5% compared to 1993. Retailers, such as those selling appliances
and home furnishings, should benefit from increased residential construction.
Car, light truck and van dealers should also benefit from the high (eight
years) average age of autos on the road.

Looking further ahead, prospects for New Jersey are favorable, although a
return to the pace of the 1980s is highly unlikely. Although growth is likely
to be slower than in the nation, the locational advantages that have served New
Jersey well for many years will still be there. Structural changes that have
been going on for years can be expected to continue, with job creation
concentrated most heavily in the service sectors.

State Aid to Local Governments was the largest portion of Fiscal Year 1996
appropriations. In fiscal year 1996, $6,423.5 million of the State's
appropriations consisted of funds which are distributed to municipalities,
counties and school districts. The largest State Aid appropriation, in the
amount of $4,750.8 million, is provided for local elementary and secondary
education programs. Of this amount $2,713.1 million is provided as foundation
aid to school districts by formula based upon the number of students and the
ability of a school district to raise taxes from its own base. In addition, the
State provided $601.0 million for special education programs for children with
disabilities. A $292.9 million program is also funded for pupils at risk of
educational failure, including basic skills improvement. The State appropriated
$612.9 million on behalf of school districts as the employer share of the
teachers' pension and benefits programs, $249.4 million to pay for the cost of
pupil transportation and $38.2 million for transition aid, which guaranteed
school districts a 6.5% increase over the aid received in Fiscal Year 1991 and
is being phased out over six years.

Appropriations to the State Department of Community Affairs ("DCA") total
$837.9 million in State Aid monies for Fiscal Year 1996. Many of the DCA State
Aid programs and many Treasury State Aid programs are consolidated into a
single appropriation, Consolidated Municipal Property Tax Relief Act in the
amount of $857.6 million. In addition there is $16.7 million for housing
programs, $33.0 million for a block grant programs, $30 million for
discretionary aid and $3.6 million in other aid. These appropriations are
offset 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.

C-2
<PAGE>

$76.1 million is appropriated to the State Department of Higher Education for
the support of nine State colleges, Rutgers University, the New Jersey
Institute of Technology, and the University of Medicine and Dentistry of New
Jersey.

$869.9 million is appropriated to the State Department of Law and Public
Safety and the Department of Corrections.

$184.3 million is appropriated to the State Department of Transportation for
the various programs it administers, such as the maintenance and improvement of
the State highway system and subsidies for railroads and bus companies.

$182.2 million is appropriated to the State Department of Environmental
Protection for the protection of air, land, water, forest, wildlife, and
shellfish resources and for the provision of outdoor recreational facilities.

The primary method for State financing of capital projects is through the
sale of the general obligation bonds of the State. These bonds are backed by
the full faith and credit of the State. State tax revenues and certain other
fees are pledged to meet the principal and interest payments and if provided,
redemption premium payments required to pay the debt fully. No general
obligation debt can be issued by the State without prior voter approval, except
that no voter approval is required for any law authorizing the creation of a
debt
for the purpose of refinancing all or a portion of outstanding debt of the
State, so long as such law requires that the refinancing provide a debt service
savings.

NEW JERSEY TAXES

In the opinion of Messrs. Shanley & Fisher, P.C., special New Jersey counsel
on New Jersey tax matters, under existing law:

The proposed activities of the New Jersey Trust will not cause it to be
subject to the New Jersey Corporation Business Tax Act.

The income of the New Jersey Trust will be treated as the income of
individuals, estates and trusts who are the Holders of Units of the New
Jersey Trust for purposes of the New Jersey Gross Income Tax Act, and
interest which is exempt from tax under the New Jersey Gross Income Tax Act
when received by the New Jersey Trust will retain its status as tax-exempt
in the hands of such Unit Holders. Gains arising from the sale or
redemption by a Holder of his Units or from the sale, exchange, redemption,
or payment at maturity of a Bond by the New Jersey Trust are exempt from
taxation under the New Jersey Gross Income Tax Act (P.L. 1976 c. 47), as
enacted and construed on the date hereof, to the extent such gains are
attributable to Bonds, the interest on which is exempt from tax under the
New Jersey Gross Income Tax Act. Any loss realized on such disposition may
not be utilized to offset gains realized by such Unit Holder on the
disposition of assets the gain on which is subject to the New Jersey Gross
Income Tax Act.

Units of the New Jersey Trust may be subject, in the estates of New
Jersey residents, to taxation under the Transfer Inheritance Tax Law of the
State of New Jersey.

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. Disbursements exceeded
receipts by $241 million for the fiscal year ended March 31, 1995.

C-3
<PAGE>

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. 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.

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 savings 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 address a widening gap.

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. The State Comptroller sued to prevent reallocation of $110 million
of reserves from a special pension fund. State and other estimates are subject
to uncertainties including the effects of Federal tax legislation and economic
developments. In October 1995, the Governor released a plan to reduce State
spending by $148 million to offset risks that have developed, including
proposed reductions in Federal aid and possible adverse court decisions. A $290
million surplus was projected in December.

The Governor has proposed a budget for the State's fiscal year commencing
April 1, 1996 to address a projected $3.9 billion budget gap. It would
eliminate 7,400 State jobs (largely through buyouts) to save $250 million
annually and reduce Medicaid ($1.1 billion), welfare ($240 million) and higher
education ($256 million) spending, but would reduce taxes by $2.1 billion,
increase prison, road and bridge construction and divert $100 million of State
lottery proceeds from education to reduce property taxes. The proposal assumes
receipt of $1.3 billion from Federal Medicaid revisions presently pending in
Congress and could also be adversely affected by pending Federal legislation to
reduce tax rates on capital gains. Non-recurring savings are estimated at $123
million. The proposed reductions are likely to add financial pressure to State
municipalities. The proposed budget would also move the State to cash
accounting but would increase use of appropriation-backed debt.

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

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<PAGE>

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. Voters in November 1995
failed to ratify a proposed constitutional amendment which would have
eliminated lease-purchase and contractual financing. The Governor has proposed
a constitutional amendment to require the State to adopt balanced budgets.

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, $875 million and $315 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
and a deficit of $1.4 billion for the fiscal year ended March 31, 1995, for an
accumulated deficit of $3.3 billion. The Governor projects a $1.4 billion
budget gap for fiscal 1998 and $1 billion for fiscal 1999. The State
Comptroller had projected a $3.9 billion gap for fiscal 1998.

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.

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 averaged 8.1% for the first eleven months of 1995, it
is still above the State and the nation as a whole. The number of persons on
welfare exceeds 1.1 million, 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 grew 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.

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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, greater control of
independent authorities and agencies, and reducing social service expenditures.
He also sought concessions from labor unions representing City employees. In
1995 an initiative to replace city school custodians with private workers was
implemented in 52 of the City's 1,100 schools. 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 has reduced 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 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. Estimates of non-recurring measures range from $500-800 million. The
Mayor proposed selling the City's water system to the New York Water Board,
which would issue $2.3 billion of bonds for the purpose. The sale has been
blocked by the City Comptroller, who refuses to sign documents required unless
the City commits to use $800 million from the bond sale, which would be
available to the City after defeasing outstanding City water and sewer bonds,
only for capital projects. In November 1995 the Mayor and the City Council sued
the Comptroller, alleging that his refusal is unauthorized.The sale also would
finance $200 million of capital spending by the Board of Education. Issuance of
bonds by the Water Board would also permit the City to issue more bonds as it
approaches its debt limit. The Mayor recently invited bids from non-profit
entities for long-term leases on three City hospitals. However, a City Council
report questions the projected savings and whether the plan would provide
adequate care for the indigent. It has also been suggested that City Council
approval is needed. In October 1995 S&P reduced its rating on Health and
Hospitals Corporation debt to BBB- (its lowest investment-grade rating), citing
City failure to articulate a coherent strategy for the hospital system.
Following conflicts with the City's Board of Education and the previous
Chancellor, the Mayor recently proposed to disband the board and replace the
Chancellor with an Education Commissioner which he would appoint. These
proposals would require implementing legislation by the State. The City Council
President subsequently proposed a Superintendent appointed jointly by the Mayor
and the Council. The Mayor has imposed fingerprinting and workfare requirements
for certain welfare recipients. A recently filed suit seeks injunction to
suspend the City's Eligibility Verification Review program which began in
January 1995 to detect welfare fraud. Other proposals including mandatory
managed care programs for Medicaid recipients have been blocked. Most of the
proposed gap-closing measures depend on cooperation of Federal or State
governments, 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. In November 1995 the Mayor
submitted a revised fiscal plan which would reduce expenses by $100 million in
the current fiscal year; another $123 million would be obtained from a debt
refinancing. The State Comptroller noted that use of one-time resources nearly
doubled (to $1.4 billion) from the plan approved in June. The revision reduces
reliance on further union concessions and increases the reserve by $100
million. The Mayor stated that the Governor's December 1995 budget proposal
will provide only $150 million of the $675 million state assistance requested
to close the City's fiscal 1997 budget gap. In January 1996 the Mayor ordered
preparation of $100 million additional reductions in agency spending for the
current fiscal year to offset higher social service spending and projected
reductions in State and Federal aid. On January 31, the Mayor presented a
preliminary budget to close a projected $2 billion budget gap for fiscal 1997.
Rating agency representatives questioned the proposal's assumptions of $800
million of additional State and Federal assistance, $300 million from sale of
City assets (including parking meters), and $244 million in retroactive
additional airport rent (two thirds of the gap-closing measures). The proposal
includes $349 million in further tax reductions. In addition to $691 million of
spending reductions in the preliminary budget (including $181 million by the
Board of Education). On

C-6
<PAGE>

February 1 the Mayor ordered City agencies to prepare $200 million in
additional reductions. On February 8, the City's budget director directed the
agencies to prepare for an additional $500 million in reductions. The Board of
Education is also facing proposed reductions of $265 million in State aid and
$189 million in Federal aid. The January proposal projected a remaining gap of
$750 million for the current fiscal year (the City Comptroller assessed the
risks at close to $1 billion). The Mayor is seeking $150 million in assistance
from MAC to fund a further worker severance program. Gaps of $3.3 billion and
$4.1 billion are projected for the 1998 and 1999 fiscal years. 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. Although the City workforce was reduced by 17,000
workers in the year and a half since January 1994, with wage and benefit
increases and overtime, wage costs continue to grow. Contracts with virtually
all of the City's labor unions expired in 1995, and the current Financial Plan
assumes no further wage increases. 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. Substantially better than anticipated
earnings on City pension funds in the latest fiscal year will allow the City to
reduce pension fund contributions over the next several years. In November
1995, the City reached tentative five-year agreements with the United
Federation of Teachers and with unions representing 140,000 City civilian
employees. The proposed contracts would postpone wage increases for two years,
and would protect members (other than hospital and certain other workers) from
layoffs through 1998, but do not provide any significant productivity savings.
However, the civil unions pledged to cooperate with the Mayor on competing with
private companies to provide services and on use of welfare recipients for
routine work. The contracts would cost an estimated $772 million and $830
million additional, respectively, over the next three years. The Mayor in
December signed legislation increasing the salaries of 64 elected officials by
up to 28%. The teachers rejected the first contract; the public employees
approved the second. Negotiations for new contracts with police and fire unions
are at an impasse. On February 12, 1996, the State legislature overrode the
Governor's veto of legislation that will transfer arbitration of City labor
disputes with police and fire unions from the Office of Collective Bargaining
to the State's Public Employment Relations Board. The transfer is expected
result in awards of higher salaries to City workers, commensurate with those
paid suburban officers. The City would also be adversely affected by a labor-
sponsored proposal to increase the minimum wages paid by contractors serving
the City.

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. 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.
Under an agreement reached in October 1995 with towns in the City's upstate
watershed area, the City would spend $1 billion over the next five years to
implement regulations and other measures (including $350 million to help these
communities reduce pollution), to protect the quality of the City's water
supply, to avert constructing water filtration facilities at an estimated cost
of up to $8 billion. The cost is expected to be defrayed by increased water
charges. Elimination of any additional budget gaps will require various
actions, including by the State, a number of which are beyond the City's
control.

The City sold $1.8 billion, $2.2 billion and $2.4 billion of short-term
notes, respectively, during the 1994, 1995 and current fiscal years. At June
30, 1995, there were outstanding $23.3 billion of City bonds (not including
City debt held by MAC), $4.0 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 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 aggregate $15.2 billion,
including $1 billion from the proposed sale of the City's water system. 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

C-7
<PAGE>

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.
Fares were increased in November 1995. In a draft budget released in October
1995, the TA proposed to eliminate 1600 jobs in 1996, in addition to 1500 jobs
already eliminated. The workforce serving the commuter railroads would also be
reduced.

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. In November 1995 the MTA board approved a $12 million
capital plan for 1996 through 1999, which includes $4.5 billion to be raised by
bonds backed by fares and a portion of the State's petroleum business tax, as
well as excess revenues of the Triborough Bridge and Tunnel Authority. The plan
does not contemplate further fare increases until 2000. the plan is subject to
approval by the State's Capital Project Review Board. The plan also projects
$2.85 billion in expense reductions over the five years. Critics have
questioned whether many of the projected labor and other savings can be
achieved. 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. City settlements were
$275 million in fiscal 1994, up from $247 million the preceding year and $175
million in fiscal 1990. 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:

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

C-8
<PAGE>

(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-9
<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 New Jersey and filing a Joint Return with
$53,000 in taxable income for the 1995 tax year would need a taxable
investment yielding 8.59% 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 NEW JERSEY

1996 TAX YEAR

<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET* TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 20,000 16.19% 4.77% 5.37% 5.97% 6.56% 7.16% 7.76%
$ 20,001 to 40,100 16.49 4.79 5.39 5.99 6.59 7.18 7.78
$ 40,101 to 50,000 29.26 5.65 6.36 7.07 7.77 8.48 9.19
$ 50,101 to 70,000 29.76 5.70 6.41 7.12 7.83 8.54 9.25
$ 70,001 to 80,000 30.52 5.76 6.48 7.20 7.92 8.64 9.36
$ 80,001 to 93,340 31.98 5.88 6.62 7.35 8.09 8.82 9.56
$ 93,341 to 117,950 34.81 6.14 6.90 7.67 8.44 9.20 9.97
$117,951 to 147,700 35.69 6.22 7.00 7.77 8.55 9.33 10.11
$147,701 to 150,000 40.56 6.73 7.57 8.41 9.25 10.09 10.93
$150,001 to 263,750 41.09 6.79 7.64 8.49 9.34 10.18 11.03
Over $263,750 44.56 7.21 8.12 9.02 9.92 10.82 11.72
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to 20,000 16.19 4.77 5.37 5.97 6.56 7.16 7.76
$ 20,001 to 24,000 16.49 4.79 5.39 5.99 6.59 7.18 7.78
$ 24,001 to 35,000 29.26 5.65 6.36 7.07 7.77 8.48 9.19
$ 35,001 to 40,000 30.52 5.76 6.48 7.20 7.92 8.64 9.36
$ 40,001 to 58,150 31.98 5.88 6.62 7.35 8.09 8.82 9.56
$ 58,151 to 75,000 34.81 6.14 6.90 7.67 8.44 9.20 9.97
$ 75,001 to 117,950 35.40 6.19 6.97 7.74 8.51 9.29 10.06
$117,951 to 121,300 36.27 6.28 7.06 7.85 8.63 9.41 10.20
$121,301 to 263,750 41.09 6.79 7.64 8.49 9.34 10.18 11.03
Over $263,750 44.56 7.21 8.12 9.02 9.92 10.82 11.72
</TABLE>
- -------
Note: This table reflects the following:
1 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI) less personal exemptions and itemized deductions
(including the deduction for state income tax). However, certain itemized
deductions are reduced by the lesser of (i) three percent of the amount of
the taxpayer's AGI over $117,950, or (ii) 80 percent of the amount of such
itemized deductions otherwise allowable. The effect of the three percent
phase out on all itemized deductions and not just those deductions subject
to the phase out is reflected above in the combined Federal and state tax
rates through the use of higher effective Federal tax rates. In addition,
the effect of the 80 percent cap on overall itemized deductions is not
reflected on this table. Federal income tax rules also provide that personal
exemptions are phased out at a rate of two percent for each $2,550 (or
fraction thereof) of AGI in excess of $176,950 for married taxpayers filing
a joint tax return and $117,950 for single taxpayers. The effect of this
phase out is not reflected in the above table.
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. The effect of this provision is not included into
the above table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates used
are the highest rates applicable to the income levels indicated within each
bracket.
4 Interest earned on municipal obligations may cause certain investors to be
subject to tax on a portion of their Social Security and for railroad
retirement benefits. The effect of this provision is not included in the
above table.

C-10
<PAGE>

STATE OF NEW YORK
1996 TAX YEAR
<TABLE>
<CAPTION>
APPROX. COMBINED TAX EXEMPT YIELD
TAXABLE FEDERAL & STATE 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to
11,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$ 11,001 to
16,000 19.25 4.95 5.57 6.19 6.81 7.43 8.05
$ 16,001 to
22,000 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$ 22,001 to
26,000 20.95 5.06 5.69 6.33 6.96 7.59 8.22
$ 26,001 to
40,100 21.06 5.07 5.70 6.33 6.97 7.60 8.23
$ 40,101 to
96,900 33.13 5.98 6.73 7.48 8.22 8.97 9.72
$ 96,901 to
117,950 35.92 6.24 7.02 7.80 8.58 9.36 10.14
$117,951 to
147,700 36.78 6.33 7.12 7.91 8.70 9.49 10.28
$147,701 to
263,750 41.56 6.84 7.70 8.56 9.41 10.27 11.12
Over $263,750 45.01 7.27 8.18 9.09 10.00 10.91 11.82
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 to
5,500 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 5,501 to
8,000 19.25 4.95 5.57 6.19 6.81 7.43 8.05
$ 8,001 to
11,000 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$ 11,001 to
13,000 20.95 5.06 5.69 6.33 6.96 7.59 8.22
$ 13,001 to
24,000 21.06 5.07 5.70 6.33 6.97 7.60 8.23
$ 24,001 to
58,150 33.13 5.98 6.73 7.48 8.22 8.97 9.72
$ 58,151 to
117,950 35.92 6.24 7.02 7.80 8.58 9.36 10.14
$117,951 to
121,300 36.78 6.33 7.12 7.91 8.70 9.49 10.28
$121,301 to
263,750 41.56 6.84 7.70 8.56 9.41 10.27 11.12
Over $263,750 45.01 7.27 8.18 9.09 10.00 10.91 11.82
- ------------
</TABLE>
Note: This table reflects the following:
1 Taxable income equals adjusted gross income ("AGI") less personal
exemptions of $2,550 less the standard deduction of $6,700 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 $117,950. 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 $117,950 for single taxpayers and $176,950
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.

CITY OF NEW YORK
1996 TAX YEAR
<TABLE>
<CAPTION>
TOTAL APPROX. COMBINED
NEW FEDERAL, STATE & TAX EXEMPT YIELD
TAXABLE YORK NEW YORK CITY 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
INCOME BRACKET RATES TAX RATE
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0
to
11,000 6.60% 20.61% 5.04% 5.67% 6.30% 6.93% 7.56% 8.19%
$ 11,001
to
14,400 7.60 21.46 5.09 5.73 6.37 7.00 7.64 8.28
$ 14,401
to
16,000 8.00 21.80 5.12 5.75 6.39 7.03 7.67 8.31
$ 16,001
to
22,000 9.00 22.65 5.17 5.82 6.46 7.11 7.76 8.40
$ 22,001
to
26,000 10.00 23.50 5.23 5.88 6.54 7.19 7.84 8.50
$ 26,001
to
27,000 10.13 23.61 5.24 5.89 6.55 7.20 7.85 8.51
$ 27,001
to
40,100 10.43 23.86 5.25 5.91 6.57 7.22 7.88 8.54
$ 40,101
to
45,000 10.43 35.51 6.20 6.98 7.75 8.53 9.30 10.08
$ 45,001
to
96,900 10.48 35.54 6.21 6.98 7.76 8.53 9.31 10.08
$ 96,901
to
108,000 10.48 38.23 6.48 7.28 8.09 8.90 9.71 10.52
$108,001
to
117,950 10.53 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$117,951
to
147,700 10.53 39.09 6.57 7.39 8.21 9.03 9.85 10.67
$147,701
to
263,750 10.53 43.70 7.11 7.99 8.88 9.77 10.66 11.55
Over
$263,750 10.53 47.02 7.55 8.49 9.44 10.38 11.33 12.27
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0
to
5,500 6.60 20.61 5.04% 5.67% 6.30% 6.93% 7.56% 8.19%
$ 5,501
to
8,000 7.60 21.46 5.09 5.73 6.37 7.00 7.64 8.28
$ 8,001
to
11,000 9.00 22.65 5.17 5.82 6.46 7.11 7.76 8.40
$ 11,001
to
13,000 10.00 23.50 5.23 5.88 6.54 7.19 7.84 8.50
$ 13,001
to
15,000 10.13 23.61 5.24 5.89 6.55 7.20 7.85 8.51
$ 15,001
to
24,000 10.43 23.86 5.25 5.91 6.57 7.22 7.88 8.54
$ 24,001
to
25,000 10.43 35.51 6.20 6.98 7.75 8.53 9.30 10.08
$ 25,001
to
58,150 10.48 35.54 6.21 6.98 7.76 8.53 9.31 10.08
$ 58,151
to
60,000 10.48 38.23 6.48 7.28 8.09 8.90 9.71 10.52
$ 60,001
to
117,950 10.53 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$117,951
to
121,300 10.53 39.09 6.57 7.39 8.21 9.03 9.85 10.67
$121,301
to
263,750 10.53 43.70 7.11 7.99 8.88 9.77 10.66 11.55
Over
$263,750 10.53 47.02 7.55 8.49 9.44 10.38 11.33 12.27
</TABLE>
- -------
Note: This table reflects the following:
1 Taxable income equals adjusted gross income ("AGI") less personal
exemptions of $2,550 less the standard deduction of $6,700 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 $117,950. 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 $117,950 for single taxpayers and $176,950
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-11
<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-5
INDEPENDENT AUDITORS' REPORT............................................... A-6
STATEMENTS OF FINANCIAL CONDITION OF THE TAX EXEMPT SECURITIES TRUST....... A-7
PORTFOLIOS OF SECURITIES................................................... A-8
TAX EXEMPT SECURITIES TRUST................................................ B-1
THE TRUSTS................................................................ B-1
OBJECTIVES................................................................ B-1
PORTFOLIO................................................................. B-1
RISK FACTORS.............................................................. B-2
THE UNITS................................................................. B-12
TAXES..................................................................... B-12
EXPENSES AND CHARGES...................................................... B-14
PUBLIC OFFERING............................................................ B-15
OFFERING PRICE............................................................ B-15
METHOD OF EVALUATION...................................................... B-15
DISTRIBUTION OF UNITS..................................................... B-16
MARKET FOR UNITS.......................................................... B-16
EXCHANGE OPTION........................................................... B-16
REINVESTMENT PROGRAMS..................................................... B-17
SPONSOR'S AND UNDERWRITERS' PROFITS....................................... B-17
RIGHTS OF UNIT HOLDERS..................................................... B-17
CERTIFICATES.............................................................. B-17
DISTRIBUTION OF INTEREST AND PRINCIPAL.................................... B-18
REPORTS AND RECORDS....................................................... B-19
REDEMPTION OF UNITS....................................................... B-19
SPONSOR.................................................................... B-20
LIMITATIONS ON LIABILITY.................................................. B-21
RESPONSIBILITY............................................................ B-21
RESIGNATION............................................................... B-21
TRUSTEE.................................................................... B-21
LIMITATIONS ON LIABILITY.................................................. B-21
RESIGNATION............................................................... B-22
EVALUATOR.................................................................. B-22
LIMITATIONS ON LIABILITY.................................................. B-22
RESPONSIBILITY............................................................ B-22
RESIGNATION............................................................... B-22
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT........................... B-22
AMENDMENT................................................................. B-22
TERMINATION............................................................... B-22
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-10
</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
------------
10,000 UNITS
------------
Prospectus
Dated February 15, 1996
------------

SPONSOR

SMITH BARNEY INC.
388 GREENWICH STREET
23RD FLOOR
NEW YORK, NEW YORK 10013
(800) 223-2532