TAX EXEMPT SECURITIES TRUST NORTH CAROLINA TRUST 11, 487, 1999-07-16

TAX EXEMPT SECURITIES TRUST NORTH CAROLINA TRUST 11
487, 1999-07-16

Previous: CATERPILLAR FINANCIAL FUNDING CORP, 424B5, 1999-07-16

Next: TECHNOLOGY FLAVORS & FRAGRANCES INC, 8-K, 1999-07-16

<PAGE>

As filed with the Securities and Exchange Commission on July 16, 1999

Registration Nos. 333-80727

333-74125

333-74131

333-82761
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 1

TO
Form S-6

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

A. Exact Name of Trust:
TAX EXEMPT SECURITIES TRUST

California Trust 169

Maryland Trust 108

New York Trust 174

North Carolina Trust 11

B. Name of depositor:
SALOMON SMITH BARNEY INC.

C. Complete address of depositor's principal executive offices:

SALOMON SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013

D. Name and complete address of agent for service:

LAURIE A. HESSLEIN
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013

Copy to:
MICHAEL R. ROSELLA, ESQ.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022

E. Title and amount of Securities being registered:

An indefinite number of Units of beneficial interest pursuant to Rule 24f-2
promulgated under the Investment Company Act of 1940, as amended.

F. Proposed maximum aggregate offering price to the public of the securities
being registered:
Indefinite

G. Amount of filing fee:
No filing fee required.

H. Approximate date of proposed sale to public:
As soon as practicable after the effective date of the registration statement.

[X] Check box if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

TAX EXEMPT SECURITIES TRUST
--------------------------------------------------------------------

California Trust 169

Maryland Trust 108

New York Trust 174

North Carolina Trust 11

Unit Investment Trusts

SALOMONSMITHBARNEY The Tax Exempt Securities Trust is sponsored by
- --------------------------- Salomon Smith Barney Inc. and consists of four
A member of citigroup [LOGO] separate unit investment trusts: California Trust
169, Maryland Trust 108, New York Trust 174 and
North Carolina Trust 11. Each trust contains a
fixed portfolio of long term municipal bonds. The
interest income of these bonds is generally
exempt from Federal income tax and, for state
designated trusts, state and local income tax in
the state for which the trust is named.

This Prospectus contains three parts. Part A contains the Summary of Essential
Information including summary material relating to the trusts, the Portfolios
and the Statements of Financial Condition. Part B contains more detailed
information about the Tax Exempt Securities Trust and Part C contains specific
information about the state designated trusts. Part A may not be distributed
unless accompanied by Parts B and C.

Read and retain this Prospectus for future reference.

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.

Prospectus dated July 16, 1999
<PAGE>

TAX EXEMPT SECURITIES TRUST

INVESTMENT SUMMARY AS OF JULY 15, 1999
Use this Investment Summary to help you decide whether the portfolios
comprising the Tax Exempt Securities Trust are right for you. More detailed
information can be found later in this prospectus.

Investment Objective

Each of the trusts seeks to pay investors monthly distributions of tax exempt
interest income while conserving their capital. The Sponsor has selected a
fixed portfolio of municipal bonds intended to achieve these goals.

Investment Strategy

All of the bonds in each of the trusts are rated A or better by Standard &
Poor's, Moody's or Fitch. State designated trusts primarily contain bonds
issued by the state for which the trust is named or counties, municipalities,
authorities or political subdivisions of that state.

Taxes

Interest on all of the bonds in each of the trusts is generally exempt from
regular Federal income taxes. Interest on all of the bonds in each state trust
is generally exempt from certain state and local personal income taxes of the
state for which the trust is named. Each of the bonds in the trusts received an
opinion from bond counsel rendered on the date of issuance confirming its tax
exempt status.

Risk Factors

Holders can lose money by investing in these trusts. The value of the units and
the bonds held in the portfolio can each decline in value. An investment in
units of a trust should be made with an understanding of the following risks:

. Municipal bonds are long-term fixed rate debt obligations that decline in
value with increases in interest rates, an issuer's worsening financial
condition or a drop in bond ratings.

. The effective maturity of a long term bond may be dramatically different
than shorter term obligations. Investors will receive early returns of
principal when bonds are called or sold before they mature. Investors may
not be able to reinvest the money they receive at as high a yield or as
long a maturity.

. The municipal bonds could lose their tax-exempt status either due to
future legislation or due to the failure of a public issuer of a bond (or
private guarantor) to meet certain conditions imposed by various tax
laws.

. The default of an issuer of a municipal bond in making its payment
obligation could result in the loss of interest income and/or principal
to investors.

. Since the portfolio of each of the trusts is fixed and not managed, in
general the Sponsor can only sell bonds at a trust's termination or in
order to meet redemptions. As a result, the price at which a bond is sold
may not be the highest price it attained during the life of a trust.

The Public Offering Price

The Public Offering Price per Unit as of July 15, 1999 would have been
$1,008.94 for the California Trust, $1,010.12 for the Maryland Trust, $1,009.93
for the New York Trust and $1,007.98 for the North Carolina Trust. During the
initial public offering period the Public Offering Price per unit is calculated
by:

. dividing the aggregate offering price of the underlying bonds in a trust
by the number of units outstanding

. adding a sales charge of 4.70% (4.932% of the aggregate offering price of
the bonds per unit)

A-2
<PAGE>

. adding a per unit amount sufficient to reimburse the Sponsor for
organizational costs

After the initial offering period the Public Offering Price per unit is
calculated by:

. dividing the aggregate bid price of the underlying bonds in a trust by
the number of units outstanding

. adding a sales charge of 5.00% (5.263% of the aggregate bid price of the
bonds per unit)

Market for Units

The Sponsor currently intends to repurchase units from holders at prices based
upon the aggregate bid price of the underlying bonds. The Sponsor is not
obligated to maintain a market and may stop doing so without prior notice for
any business reason. If the Sponsor stops repurchasing units, a unit holder may
dispose of its units by redemption. The price received from the Trustee by the
unit holder for units being redeemed is also based upon the aggregate bid price
of the underlying bonds. Units can be sold at any time to the Sponsor or the
Trustee without fee or penalty.

A-3
<PAGE>

TAX EXEMPT SECURITIES TRUST

FEE TABLE FOR CALIFORNIA TRUST 169
- --------------------------------------------------------------------------------
This Fee Table is intended to help you to understand the costs and expenses
that you will bear directly or indirectly. See Public Sale of Units and
Expenses and Charges. Although each Trust is a unit investment trust rather
than a mutual fund, this information is presented to permit a comparison of
fees.
- --------------------------------------------------------------------------------

Unitholder Transaction Expenses (fees paid directly from your investment)

<TABLE>
<CAPTION>
As a % of
Public Amounts
Offering per
Price Unit
---------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................ 4.70% $47.30
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .248% $ 2.50

Estimated Annual Trust Operating Expenses (expenses that are deducted from
Trust assets)

<CAPTION>
Amounts
As a % of per
Net Assets Unit
---------- -------
<S> <C> <C>
Trustee's Fee............................................... .128% $1.23
Other Operating Expenses.................................... .033% $ .32
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .026% $ .25
----- ------
Total..................................................... .187% $1.80
===== ======
</TABLE>

Example

<TABLE>
<CAPTION>
Cumulative Expenses
and Charges
Paid for Period
----------------------
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses and
charges on a $10,000 investment, assuming the
Trust's estimated operating expense ratio of .187%
and a 5% annual return on the investment
throughout the periods............................ $488 $527 $570 $698
</TABLE>

The example assumes reinvestment of all dividends and distributions and
utilizes a 5% annual rate of return as mandated by Securities and Exchange
Commission regulations applicable to mutual funds. The example should not be
considered a representation of past or future expenses or annual rate of
return; the actual expenses and annual rate of return may be more or less than
those assumed for purposes of the example.

A-4
<PAGE>

TAX EXEMPT SECURITIES TRUST

FEE TABLE FOR MARYLAND TRUST 108
- --------------------------------------------------------------------------------
This Fee Table is intended to help you to understand the costs and expenses
that you will bear directly or indirectly. See Public Sale of Units and
Expenses and Charges. Although each Trust is a unit investment trust rather
than a mutual fund, this information is presented to permit a comparison of
fees.
- --------------------------------------------------------------------------------

Unitholder Transaction Expenses (fees paid directly from your investment)

<TABLE>
<CAPTION>
As a % of
Public Amounts
Offering per
Price Unit
--------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................. 4.70% $47.36
Maximum Sales Charge Imposed on Reinvested Dividends......... 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs.... .248% $ 2.50
</TABLE>

Estimated Annual Trust Operating Expenses (expenses that are deducted from
Trust assets)

<TABLE>
<CAPTION>
Amounts
As a % of per
Net Assets Unit
---------- -------
<S> <C> <C>
Trustee's Fee................................................ .124% $1.20
Other Operating Expenses..................................... .037% $ .36
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees......................................... .026% $ .25
----- -----
Total...................................................... .187% $1.81
===== =====
</TABLE>

Example

<TABLE>
<CAPTION>
Cumulative Expenses
and Charges
Paid for Period
----------------------
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses and charges
on a $10,000 investment, assuming the Trust's estimated
operating
expense ratio of .187% and a 5% annual return on the
investment throughout the periods....................... $488 $527 $570 $698
</TABLE>

A-5
<PAGE>

TAX EXEMPT SECURITIES TRUST

FEE TABLE FOR NEW YORK TRUST 174
- --------------------------------------------------------------------------------
This Fee Table is intended to help you to understand the costs and expenses
that you will bear directly or indirectly. See Public Sale of Units and
Expenses and Charges. Although each Trust is a unit investment trust rather
than a mutual fund, this information is presented to permit a comparison of
fees.
- --------------------------------------------------------------------------------

Unitholder Transaction Expenses (fees paid directly from your investment)

<TABLE>
<CAPTION>
As a % of
Public Amounts
Offering per
Price Unit
---------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................ 4.70% $47.35
Maximum Sales Charge Imposed on Reinvested Dividends........ 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs... .247% $ 2.50

Estimated Annual Trust Operating Expenses (expenses that are deducted from
Trust assets)

<CAPTION>
Amounts
As a % of per
Net Assets Unit
---------- -------
<S> <C> <C>
Trustee's Fee............................................... .127% $ 1.22
Other Operating Expenses.................................... .043% $ .41
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees........................................ .026% $ .25
----- ------
Total..................................................... .196% $ 1.88
===== ======
</TABLE>

Example

<TABLE>
<CAPTION>
Cumulative Expenses
and Charges
Paid for Period
----------------------
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses and
charges on a $10,000 investment, assuming the
Trust's estimated operating expense ratio of
.196% and a 5% annual return on the
investment throughout the periods................... $489 $530 $575 $708
</TABLE>

A-6
<PAGE>

TAX EXEMPT SECURITIES TRUST

FEE TABLE FOR NORTH CAROLINA TRUST 11
- --------------------------------------------------------------------------------
This Fee Table is intended to help you to understand the costs and expenses
that you will bear directly or indirectly. See Public Sale of Units and
Expenses and Charges. Although each Trust is a unit investment trust rather
than a mutual fund, this information is presented to permit a comparison of
fees.
- --------------------------------------------------------------------------------

Unitholder Transaction Expenses (fees paid directly from your investment)

<TABLE>
<CAPTION>
As a % of
Public Amounts
Offering per
Price Unit
--------- -------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchase (as a percentage of
offering price)............................................. 4.70% $47.26
Maximum Sales Charge Imposed on Reinvested Dividends......... 0% $ 0
Reimbursement to Sponsor for Estimated Organization Costs.... .248% $ 2.50
</TABLE>

Estimated Annual Trust Operating Expenses (expenses that are deducted from
Trust assets)

<TABLE>
<CAPTION>
Amounts
As a % of per
Net Assets Unit
---------- -------
<S> <C> <C>
Trustee's Fee................................................ .128% $1.23
Other Operating Expenses..................................... .034% $ .33
Maximum Portfolio Supervision, Bookkeeping and
Administrative Fees......................................... .026% $.25
----- -----
Total...................................................... .188% $1.81
===== =====
</TABLE>

Example

<TABLE>
<CAPTION>
Cumulative Expenses
and Charges
Paid for Period
----------------------
1 3 5 10
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
An investor would pay the following expenses and
charges on a $10,000 investment, assuming the
Trust's estimated operating expense ratio of
.188% and a 5% annual return on the
investment throughout the periods................... $488 $528 $571 $699
</TABLE>

A-7
<PAGE>

TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION

AS OF JULY 15, 1999+
Sponsor

Salomon Smith Barney Inc.

Trustee

The Chase Manhattan Bank

Evaluator

Kenny S & P Evaluation Services, a business unit of J.J. Kenny Company, Inc.

Date of Deposit and of Trust Agreement

July 15, 1999

Mandatory Termination Date*

Each Trust will terminate on the date of maturity, redemption, sale or other
disposition of the last Bond held in the Trust.

Record Dates

The first day of each month, commencing August 1, 1999

Distribution Dates

The fifteenth day of each month,** commencing August 15, 1999

Evaluation Time

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

Evaluator's Fee

The Evaluator will receive a fee of $.29 per bond per evaluation.

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 $2.24 for the California Trust,
$2.15 for the Maryland Trust, $2.22 for the New York Trust and $2.24 for the
North Carolina Trust, will be made on August 15, 1999.
*** In addition to this amount, the Sponsor may be reimbursed for bookkeeping
and other administrative expenses not exceeding its actual costs.

A-8
<PAGE>

TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION

AS OF JULY 15, 1999
<TABLE>
<CAPTION>
California Trust 169 Maryland Trust 108
-------------------- ------------------
<S> <C> <C>
Principal Amount of Bonds in Trust.... $3,000,000 $2,000,000
Number of Units....................... 3,000 2,000
Principal Amount of Bonds in Trust per
Unit................................. $ 1,000 $ 1,000
Fractional Undivided Interest in Trust
per Unit............................. 1/3,000 1/2,000
Minimum Value of Trust:
Trust Agreement may be Terminated if
Principal Amount is less than....... $1,500,000 $1,000,000
Calculation of Public Offering Price
per Unit*:
Aggregate Offering Price of Bonds in
Trust............................... $2,877,410 $1,920,515
========== ==========
Divided by Number of Units........... $ 959.14 $ 960.26
Plus: Sales Charge (4.70% of the
Public Offering Price).............. $ 47.30 $ 47.36
---------- ----------
Public Offering Price per Unit....... $ 1,006.44 $ 1,007.62
Plus: Estimated Organization
Expenses............................ $ 2.50 $ 2.50
Plus Accrued Interest*............... $ .84 $ .80
---------- ----------
Total................................ $ 1,009.78 $ 1,010.92
========== ==========
Sponsor's Initial Repurchase Price per
Unit (per Unit Offering Price of
Bonds)**............................. $ 959.14 $ 960.26
Approximate Redemption Price per Unit
(per Unit Bid Price of Bonds)**...... $ 955.14 $ 956.26
---------- ----------
Difference Between per Unit Offering
and Bid Prices of Bonds.............. $ 4.00 $ 4.00
========== ==========
Calculation of Estimated Net Annual
Income per Unit:
Estimated Annual Income per Unit..... $ 52.32 $ 50.29
Less: Estimated Trustee's Annual
Fee***.............................. $ 1.23 $ 1.20
Less: Other Estimated Annual
Expenses............................ $ .57 $ .61
---------- ----------
Estimated Net Annual Income per Unit. $ 50.52 $ 48.48
========== ==========
Calculation of Monthly Income
Distribution per Unit:
Estimated Net Annual Income per Unit. $ 50.52 $ 48.48
Divided by 12........................ $ 4.21 $ 4.04
Accrued interest from the day after
the Date of Deposit to the first
record date**........................ $ 2.24 $ 2.15
First distribution per unit........... $ 2.24 $ 2.15
Daily Rate (360-day basis) of Income
Accrual per Unit..................... $ .1403 $ .1346
Estimated Current Return based on
Public Offering Price****............ 5.01% 4.80%
Estimated Long-Term Return****........ 5.03% 4.87%
</TABLE>
- ------------
* Accrued interest will commence 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 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 basis.
As of the close of the initial offering period, the Redemption Price per
Unit and the Sponsor's Repurchase Price per Unit for each Trust will be
reduced to reflect the payment of the per Unit organization costs.
*** Per $1,000 principal amount of Bonds, plus expenses.
**** The Estimated Current Return is calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit.
The Estimated Net Annual Interest Income per Unit will vary with changes
in fees and expenses of the Trustee and the Evaluator and with the
principal prepayment, redemption, maturity, exchange or sale of Bonds
while the Public Offering Price will vary with changes in the offering
price of the underlying Bonds; therefore, there is no assurance that the
present Estimated Current Return indicated above will be realized in the
future. The Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration, and factors in the relative
weightings of, the market values, yields (which takes into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account
the expenses and sales charge associated with each Unit. Since the market
values and estimated retirements of the Bonds and the expenses of the
Trust will change, there is no assurance that the present Estimated Long-
Term Return as indicated above will be realized in the future. The
Estimated Current Return and Estimated Long-Term Return are expected to
differ because the calculation of the Estimated Long-Term Return reflects
the estimated date and amount of principal returned while the Estimated
Current Return calculations include only Net Annual Interest Income and
Public Offering Price as of the Date of Deposit.

A-9
<PAGE>

TAX EXEMPT SECURITIES TRUST
SUMMARY OF ESSENTIAL INFORMATION

AS OF JULY 15, 1999
<TABLE>
<CAPTION>
North
New York Carolina
Trust 174 Trust 11
---------- ----------
<S> <C> <C>
Principal Amount of Bonds in Trust.................... $3,000,000 $2,000,000
Number of Units....................................... 3,000 2,000
Principal Amount of Bonds in Trust per Unit........... $ 1,000 $ 1,000
Fractional Undivided Interest in Trust per Unit....... 1/3,000 1/2,000
Minimum Value of Trust:
Trust Agreement may be Terminated if Principal Amount
is less than........................................ $1,500,000 $1,000,000
Calculation of Public Offering Price per Unit*:
Aggregate Offering Price of Bonds in Trust........... $2,880,251 $1,916,436
========== ==========
Divided by Number of Units........................... $ 960.08 $ 958.22
Plus: Sales Charge (4.70% of the Public Offering
Price).............................................. $ 47.35 $ 47.26
---------- ----------
Public Offering Price per Unit....................... $ 1,007.43 $ 1,005.48
Plus: Estimated Organization Expenses................ $ 2.50 $ 2.50
Plus Accrued Interest*............................... $ .83 $ .84
---------- ----------
Total................................................ $ 1,010.76 $ 1,008.82
========== ==========
Sponsor's Initial Repurchase Price per Unit (per Unit
Offering Price of Bonds)**........................... $ 960.08 $ 958.22
Approximate Redemption Price per Unit (per Unit Bid
Price of Bonds)**.................................... $ 956.08 $ 954.22
---------- ----------
Difference Between per Unit Offering and Bid Prices of
Bonds................................................ $ 4.00 $ 4.00
========== ==========
Calculation of Estimated Net Annual Income per Unit:
Estimated Annual Income per Unit..................... $ 52.04 $ 52.21
Less: Estimated Trustee's Annual Fee***.............. $ 1.22 $ 1.23
Less: Other Estimated Annual Expenses................ $ .66 $ .58
---------- ----------
Estimated Net Annual Income per Unit................. $ 50.16 $ 50.40
========== ==========
Calculation of Monthly Income Distribution per Unit:
Estimated Net Annual Income per Unit................. $ 50.16 $ 50.40
Divided by 12........................................ $ 4.18 $ 4.20
Accrued interest from the day after the Date of
Deposit to the first record date**................... $ 2.22 $ 2.24
First distribution per unit........................... $ 2.22 $ 2.24
Daily Rate (360-day basis) of Income Accrual per
Unit................................................. $ .1393 $ .1400
Estimated Current Return based on Public Offering
Price****............................................ 4.97% 5.00%
Estimated Long-Term Return****........................ 5.01% 5.06%
</TABLE>
- ------------
* Accrued interest will commence 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 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 basis.
As of the close of the initial offering period, the Redemption Price per
Unit and the Sponsor's Repurchase Price per Unit for each Trust will be
reduced to reflect the payment of the per Unit organization costs.
*** Per $1,000 principal amount of Bonds, plus expenses.
**** The Estimated Current Return is calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit.
The Estimated Net Annual Interest Income per Unit will vary with changes
in fees and expenses of the Trustee and the Evaluator and with the
principal prepayment, redemption, maturity, exchange or sale of Bonds
while the Public Offering Price will vary with changes in the offering
price of the underlying Bonds; therefore, there is no assurance that the
present Estimated Current Return indicated above will be realized in the
future. The Estimated Long-Term Return is calculated using a formula
which (1) takes into consideration, and factors in the relative
weightings of, the market values, yields (which takes into account the
amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Bonds in the Trust and (2) takes into account
the expenses and sales charge associated with each Unit. Since the market
values and estimated retirements of the Bonds and the expenses of the
Trust will change, there is no assurance that the present Estimated Long-
Term Return as indicated above will be realized in the future. The
Estimated Current Return and Estimated Long-Term Return are expected to
differ because the calculation of the Estimated Long-Term Return reflects
the estimated date and amount of principal returned while the Estimated
Current Return calculations include only Net Annual Interest Income and
Public Offering Price as of the Date of Deposit.

A-10
<PAGE>

TAX EXEMPT SECURITIES TRUST

PORTFOLIO SUMMARY AS OF JULY 15, 1999

<TABLE>
<CAPTION>
California Maryland
Trust 169 Trust 108
------------ ------------
<S> <C> <C>
Number of municipal bonds (from California for the
California Trust; and from Maryland and the
Commonwealth of Puerto Rico for the Maryland Trust). 9 7
Number of bonds issued with "original issue
discount"........................................... 6 5
Average life to maturity of the Bonds in the Trust
(in years).......................................... 29.1 30.9
<CAPTION>
Percentages+ Percentages+
------------ ------------
<S> <C> <C>
Percentage of bonds acquired from the Sponsor (as
sole underwriter, member of underwriting syndicate
or otherwise from its own organization)............. 0.0% 16.5%
General obligation bonds backed by the taxing power
of state issuer..................................... 0.0% 15.6%
General obligation bonds backed by the taxing power
of Puerto Rico issuer............................... 0.0% 13.8%
Bonds not supported by the issuer's power to levy
tax................................................. 100.0% 70.6%
The bonds derived their income from the following
primary sources:
. educational facilities............................. 0.0% 30.3%*
. hospital and health care facilities................ 37.3%* 40.3%*
. housing facilities................................. 8.9% 0.0%
. lease rental payments.............................. 17.3% 0.0%
. recreational facilities............................ 20.9% 0.0%
. tax allocation..................................... 15.6% 0.0%
The bonds in the trust are rated as follows:
. Standard & Poor's
AAA................................................ 57.4% 12.7%
AA................................................. 0.0% 32.1%
A.................................................. 42.6% 27.6%
----- ----
Total............................................ 100.0% 72.4%
===== ====
. Moody's
Aaa................................................ 0.0% 12.6%
A.................................................. 0.0% 15.0%
----- ----
Total............................................ 0.0% 27.6%
===== ====
The following insurance companies have insured the
bonds in the trust as to timely payment of principal
and interest:
. ACA................................................ 20.9% 0.0%
. AMBAC.............................................. 30.4% 0.0%
. FSA................................................ 8.2% 25.3%
. MBIA............................................... 9.9% 0.0%
----- ----
Total............................................ 69.4% 25.3%
===== ====
</TABLE>

- ------------
+ Percentages based on the aggregate offering price of the bonds in the trust.
* The trust is considered to be "concentrated" in a particular category when
bonds of that type make up 25% or more of the portfolio.

A-11
<PAGE>

TAX EXEMPT SECURITIES TRUST

PORTFOLIO SUMMARY AS OF JUNE 15, 1999
<TABLE>
<CAPTION>
New York North Carolina
Trust 174 Trust 11
--------- --------------
<S> <C> <C>
Number of municipal bonds (from New York for the
New York Trust and from North Carolina for the
North Carolina Trust)............................. 10 8
Number of bonds issued with "original issue
discount"......................................... 8 7
Average life to maturity of the Bonds in the Trust
(in years)........................................ 29.6 24.7
<CAPTION>
Percentages+ Percentages+
------------ --------------
<S> <C> <C>
Percentage of bonds acquired from the Sponsor (as
sole underwriter, member of underwriting syndicate
or otherwise from its own organization)........... 0.0% 0.0%
General obligation bonds backed by the taxing power
of state issuer................................... 8.5% 0.0%
Bonds not supported by the issuer's power to levy
tax............................................... 91.5% 100.0%
The bonds derived their income from the following
primary sources:
. correctional facilities.......................... 8.1% 0.0%
. educational facilities........................... 8.1% 24.4%
. hospital and health care facilities.............. 24.7% 52.3%*
. housing facilities............................... 23.6% 13.0%
. power facilities................................. 10.7% 10.3%
. transportation facilities........................ 8.5% 0.0%
. water and sewer facilities....................... 7.8% 0.0%
The bonds in the trust are rated as follows:
. Standard & Poor's
AAA.............................................. 23.9% 34.3%
AA............................................... 11.4% 39.6%
A................................................ 19.3% 26.1%
----- ------
Total.......................................... 54.6% 100.0%
===== ======
. Moody's
Aa............................................... 20.7% 0.0%
. Fitch
A................................................ 24.7% 0.0%
The following insurance companies have insured the
bonds in the trust as to timely payment of
principal and interest:
. Asset Guaranty................................... 0.0% 28.1%
. FGIC............................................. 7.8% 0.0%
. MBIA............................................. 16.1% 34.3%
----- ------
Total.......................................... 23.9% 62.4%
===== ======
</TABLE>

A-12
<PAGE>

UNDERWRITING

The names and addresses of the Underwriters and the number of Units to be
sold by them are as follows:

<TABLE>
<CAPTION>
Units
-----------------------------------------
Maryland New York North
California Trust Trust Carolina
Trust 169 108 174 Trust 11
---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Salomon Smith Barney Inc. ............ 2,150 2,000 2,650 2,000
388 Greenwich Street
New York, New York 10013
Southwest Securities.................. 750 -- -- --
45 Broadway
New York, New York 10006
Gruntal & Co. Incorporated............ 100 -- 250 --
14 Wall Street
New York, New York 10005
Oppenheimer & Co. Inc. ............... -- -- 100 --
Oppenheimer Tower
One World Financial Center
New York, New York 10281
----- ----- ----- -----
Total................................. 3,000 2,000 3,000 2,000
===== ===== ===== =====
</TABLE>

A-13
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Sponsor, Trustee and Unit Holders of

Tax Exempt Securities Trust, California Trust 169, Maryland Trust 108, New
York Trust 174 and North Carolina Trust 11:

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, California Trust 169, Maryland Trust 108, New York
Trust 174 and North Carolina Trust 11 as of July 15, 1999. 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
July 15, 1999, 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, California Trust
169, Maryland Trust 108, New York Trust 174 and North Carolina Trust 11 as of
July 15, 1999, in conformity with generally accepted accounting principles.

/s/ KPMG LLP

New York, New York

July 15, 1999

A-14
<PAGE>

TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION

AS OF DATE OF DEPOSIT, JULY 15, 1999

<TABLE>
<CAPTION>
TRUST PROPERTY
---------------------
California Maryland
Trust 169 Trust 108
---------- ----------
<S> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by
letter of credit (1).................................. $2,877,410 $1,920,515
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)................................. 35,953 12,472
Cash (3)................................................. 7,500 5,000
---------- ----------
Total................................................ $2,920,863 $1,937,987
========== ==========

<CAPTION>
LIABILITIES AND
INTEREST OF
UNIT HOLDERS
---------------------
<S> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)............................... $ 35,953 $ 12,472
Reimbursement to Sponsor for Organization Costs (3).... 7,500 5,000
---------- ----------
43,453 17,472
---------- ----------
Interest of Unit Holders:
Units of fractional undivided interest outstanding
(California Trust 169: 3,000; Maryland Trust 108:
2,000) Cost to investors (4).......................... 3,026,790 2,020,220
Less--Gross underwriting commission (5)............... 141,880 94,705
Less--Organization Costs (3).......................... 7,500 5,000
---------- ----------
Net amount applicable to investors.................... 2,877,410 1,920,515
---------- ----------
Total................................................ $2,920,863 $1,937,987
========== ==========
</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 July 15, 1999, the Date of Deposit, determined by the
Evaluator on the basis set forth in Part B, "Public Offering--Offering
Price." Svenska Handelsbanken issued an irrevocable letter of credit in
the aggregate principal amount of $15,000,000 which was deposited with the
Trustee for the purchase of $10,000,000 principal amount of Bonds in all
of the Trusts, pursuant to contracts to purchase such Bonds at the
aggregate cost of $9,594,612 plus $102,219 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) A portion of the Public Offering Price consists of cash in an amount
sufficient to reimburse the Sponsor for the per Unit portion of all or a
part of the organization costs of establishing a Trust. These costs have
been estimated at $2.50 per Unit for the California Trust and $2.50 per
Unit for the Maryland Trust. A payment will be made as of the close of the
initial public offering period to an account maintained by the Trustee
from which the obligation of the investors to the Sponsor will be
satisfied. To the extent that actual organization expenses are less than
the estimated amount, only the actual organization expenses will be
deducted from the assets of a Trust.

(4) Aggregate public offering price (exclusive of interest) computed on 3,000
Units of the California Trust and 2,000 Units of the Maryland Trust, on
the basis set forth in Part B, "Public Offering--Offering Price."

(5) Sales charge of 4.70% computed on 3,000 Units of the California Trust and
2,000 Units of the Maryland Trust 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 (exclusive
of estimate of organization expense) 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-15
<PAGE>

TAX EXEMPT SECURITIES TRUST
STATEMENTS OF FINANCIAL CONDITION

AS OF DATE OF DEPOSIT, JULY 15, 1999

<TABLE>
<CAPTION>
TRUST PROPERTY
-------------------------
North
New York Carolina
Trust 174 Trust 11
---------- ----------
<S> <C> <C> <C>
Investment in Tax-Exempt Securities:
Bonds represented by purchase contracts backed by
letter of credit (1).............................. $2,880,251 $1,916,436
Accrued interest through the Date of Deposit on
underlying
bonds (1)(2)........................................ 32,372 21,422
Cash (3)............................................. 7,500 5,000
---------- ----------
Total............................................ $2,920,123 $1,942,858
========== ==========

<CAPTION>
LIABILITIES AND INTEREST
OF
UNIT HOLDERS
-------------------------
<S> <C> <C> <C>
Liabilities:
Accrued interest through the Date of Deposit on
underlying bonds (1)(2)........................... $ 32,372 $ 21,422
Reimbursement to Sponsor for Organization Costs
(3)............................................... 7,500 5,000
---------- ----------
39,872 26,422
========== ==========
Interest of Unit Holders:
Units of fractional undivided interest outstanding
(New York Trust 174: 3,000; North Carolina Trust
11: 2,000) Cost to investors (4).................. 3,029,790 2,015,940
Less--Gross underwriting commission (5)........... 142,039 94,504
Less--Organization Costs (3)...................... 7,500 5,000
---------- ----------
Net amount applicable to investors................ 2,880,251 1,916,436
---------- ----------
Total............................................ $2,920,123 $1,942,858
========== ==========
</TABLE>
- ------------

(3) A portion of the Public Offering Price consists of cash in an amount
sufficient to reimburse the Sponsor for the per Unit portion of all or a
part of the organization costs of establishing a Trust. These costs have
been estimated at $2.50 per Unit for the New York Trust and $2.50 per Unit
for the North Carolina Trust. A payment will be made as of the close of
the initial public offering period to an account maintained by the Trustee
from which the obligation of the investors to the Sponsor will be
satisfied. To the extent that actual organization expenses are less than
the estimated amount, only the actual organization expenses will be
deducted from the assets of a Trust.

(4) Aggregate public offering price (exclusive of interest) computed on 3,000
Units of the New York Trust and 2,000 Units of the North Carolina Trust,
on the basis set forth in Part B, "Public Offering--Offering Price."

(5) Sales charge of 4.70% computed on 3,000 Units of the New York Trust and
2,000 Units of the North Carolina Trust 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 (exclusive
of estimate of organization expense) 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-16
<PAGE>

TAX EXEMPT SECURITIES TRUST

CALIFORNIA TRUST 169--PORTFOLIO OF SECURITIES

AS OF JULY 15, 1999

2. 340,000 California A 12/1/09 @ 101 347,534 5.500 19,550
Infrastructure & SF 12/1/20 @ 100
Economic Development
Bank Revenue Bonds,
American Center for Wine
Food Arts, ACA Insured,
5.75% Due 12/1/2024

3. 500,000 California Health AAA 10/1/08 @ 102 427,685 5.500 22,500
Facilities Financing SF 10/1/21 @ 100
Authority, Insured
Revenue Bonds, Little
Company of Mary Health
Services, AMBAC Insured,
4.50% Due 10/1/2028

4. 250,000 California Health AAA 11/15/08 @ 101 235,343 5.400 12,500
Facilities Finance SF 11/15/19 @ 00
Authority Revenue Bonds,
UCSF-Stanford Health
Care, FSA Insured, 5.00%
Due 11/15/2028

5. 250,000 City of Camarillo, AAA 5/20/08 @ 102 256,090 5.476 14,125
California, Housing SF 5/20/01 @ 100
Revenue Bonds, GNMA
Collateralized, Heritage
House Project, 5.65% Due
5/20/2033

6. 125,000 San Bernardino, A- 8/1/04 @ 102 124,155 5.550 6,875
California, Certificates SF 8/1/23 @ 100
of Participation,
Medical Center Financing
Project, 5.50% Due
8/1/2024

7. 285,000 San Bernardino, AAA 8/1/04 @ 102 285,815 5.450 15,675
California, Certificates SF 8/1/23 @ 100
of Participation,
Medical Center Financing
Project, MBIA Insured,
5.50% Due 8/1/2024

</TABLE>

A-17
<PAGE>

TAX EXEMPT SECURITIES TRUST

CALIFORNIA TRUST 169--PORTFOLIO OF SECURITIES

AS OF JULY 15, 1999

8. $ 500,000 Redevelopment Agency of AAA 8/1/08 @ 101 $ 447,860 5.450% $ 23,750
the City of San Jose,
California, Merged Area
Redevelopment Project,
Tax Allocation Bonds,
AMBAC Insured, 4.75% Due
8/1/2030

9. 500,000 City of San Mateo, A 8/1/07 @ 102 498,525 5.520 27,500
California, Joint Powers SF 8/1/24 @ 100
Financing Authority
Revenue Bonds, Golf
Course Project, 5.50%
Due 8/1/2029
---------- ---------- --------
$3,000,000 $2,877,410 $156,975
========== ========== ========
</TABLE>

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

A-18
<PAGE>

TAX EXEMPT SECURITIES TRUST

MARYLAND TRUST 108--PORTFOLIO OF SECURITIES

AS OF JULY 15, 1999

<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented Ratings Provisions to Trust Deposit Income
Principal by Purchase Contracts (1) (2) (3)(4) (4) to Trust
--------- ------------------------ ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $ 300,000 Maryland Health and A2* 7/1/08 @ 102 $ 286,743 5.300% $ 15,000
Higher Educational SF 1/1/20 @ 100
Facilities Authority
Revenue Bonds, Calvert
Memorial Hospital Issue,
5.00% Due 7/1/2028
2. 320,000 Maryland Health and AA- 7/1/08 @ 102 316,950 5.200 16,400
Higher Educational SF 7/1/18 @ 100
Facilities Authority
Refunding Revenue Bonds,
Johns Hopkins University
Issue, 5.125% Due
7/1/2020
3. 280,000 Maryland Health and A 10/1/09 @ 101 263,850 5.350 14,000
Higher Educational SF 10/1/30 @ 100
Facilities Authority
Revenue Bonds, Loyola
College Issue, 5.00% Due
10/1/2039
4. 250,000 Maryland Health and AAA -- 244,650 5.381 13,125
Higher Educational SF 8/15/29 @ 100
Facilities Authority
Revenue Bonds,
Medlantic/Helix Issue,
FSA Insured, 5.25% Due
8/15/2038
5. 250,000 Maryland Health and Aaa* 1/1/08 @ 101 242,843 5.300 12,812
Higher Educational SF 1/1/34 @ 100
Facilities Authority
Revenue Bonds, Upper
Chesapeake Hospital
Issue, FSA Insured,
5.125% Due 1/1/2038
6. 300,000 Anne Arundel County, AA+ 5/15/09 @ 101 299,700 5.256 15,750
Maryland, General SF 5/15/21 @ 100
Obligation Bonds,
Consolidated Water and
Sewer, 5.25% Due
5/15/2028
7. 300,000 Commonwealth of Puerto A 7/1/08 @ 101 265,779 5.350 13,500
Rico, Public Improvement SF 7/1/19 @ 100
Refunding Bonds, General
Obligation Bonds, 4.50%
Due 7/1/2023
---------- ---------- --------
$2,000,000 $1,920,515 $100,587
========== ========== ========
</TABLE>

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

A-19
<PAGE>

TAX EXEMPT SECURITIES TRUST

NEW YORK TRUST 174--PORTFOLIO OF SECURITIES

AS OF JULY 15, 1999

<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented by Purchase Ratings Provisions to Trust Deposit Income
Principal Contracts (1) (2) (3)(4) (4) to Trust
--------- ---------------------------------- ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
1. $250,000 The City of New York, A- 8/1/09 @ 101 $246,027 5.500% $13,437
General Obligation
Bonds, 5.375% Due
8/1/2021

2. 340,000 New York City Housing AA 11/1/08 @ 101.5 329,691 5.450 17,850
Development Corporation, SF 5/1/19 @ 100
Multi-Family Housing
Revenue Bonds, 5.25% Due
11/1/2031

3. 250,000 New York City Municipal AAA 6/15/08 @ 101 225,390 5.400 11,875
Water Finance Authority, SF 6/15/30 @ 100
Water and Sewer System
Revenue Bonds, FGIC
Insured, 4.75% Due
6/15/2031

4. 500,000 Dormitory Authority of AAA 2/1/09 @ 101 463,760 5.450 25,000
the State of New York, SF 8/1/11 @ 100
Sisters of Charity
Health Care System
Corporation, FHA Insured
Mortgage Hospital
Revenue Bonds, MBIA
Insured, 5.00% Due
8/1/2038

5. 250,000 Dormitory Authority of A** 2/15/08 @ 101.5 246,575 5.500 13,500
the State of New York, SF 2/15/20 @ 100
Secured Hospital Revenue
Bonds, St. Clares
Hospital, 5.40% Due
2/15/2025

6. 250,000 Dormitory Authority of A** 7/1/09 @ 101 231,988 5.500 12,500
the State of New York, SF 7/1/20 @ 100
Upstate Community
Colleges, Revenue Bonds,
5.00% Due 7/1/2028

7. 350,000 State of New York Aa2** 10/1/09 @ 100 349,650 5.556 19,425
Mortgage Agency, SF 10/1/26 @ 100
Homeowner Mortgage
Revenue Bonds, 5.55% Due
10/1/2027

8. 250,000 New York State Urban A** 1/1/09 @ 101 232,975 5.500 12,500
Development Corporation, SF 1/1/19 @ 100
Correctional Facilities
Service Contract Revenue
Bonds, 5.00% Due
1/1/2025

</TABLE>

A-20
<PAGE>

TAX EXEMPT SECURITIES TRUST

NEW YORK TRUST 174--PORTFOLIO OF SECURITIES

AS OF JULY 15, 1999

<TABLE>
<CAPTION>
Cost of Yield on Annual
Redemption Securities Date of Interest
Aggregate Securities Represented by Purchase Ratings Provisions to Trust Deposit Income
Principal Contracts (1) (2) (3)(4) (4) to Trust
--------- ---------------------------------- ------- ---------------- ---------- -------- --------
<C> <C> <S> <C> <C> <C> <C> <C>
9. $ 310,000 Long Island Power A- 6/1/03 @ 101 $ 309,070 5.520% $ 17,050
Authority, Electric SF 12/1/27 @ 100
System General Revenue
Bonds, 5.50% Due
12/1/2029

10. 250,000 Triborough Bridge and Aa3 1/1/07 @ 102 245,125 5.350 13,000
Tunnel Authority, SF 1/1/18 @ 100
General Purpose Revenue
Bonds, 5.20% Due
1/1/2022
---------- ---------- --------
$3,000,000 $2,880,251 $156,137
========== ========== ========
</TABLE>

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

A-21
<PAGE>

TAX EXEMPT SECURITIES TRUST

NORTH CAROLINA TRUST 11--PORTFOLIO OF SECURITIES

AS OF JULY 15, 1999

1. $ 250,000 North Carolina AA 10/1/08 @ 102 $ 242,620 5.500% $ 13,125
Educational Facilities SF 10/1/09 @ 100
Finance Agency,
Educational Facilities
Revenue Bonds, Saint
Augustine's College,
Asset Guaranty Insured,
5.25% Due 10/1/2018
2. 250,000 North Carolina Medical A+ 2/15/06 @ 102 249,750 5.508 13,750
Care Commission, SF 2/15/16 @ 100
Hospital Revenue Bonds,
Gaston Memorial Hospital
Project, 5.50% Due
2/15/2019
3. 250,000 North Carolina Medical AAA 10/1/08 @ 101 235,365 5.400 12,500
Care Commission, Health SF 10/1/19 @ 100
Care Facilities Revenue
Bonds, Novant Health
Project, MBIA Insured,
5.00% Due 10/1/2028
4. 250,000 North Carolina Medical AA- 12/1/08 @ 101 221,163 5.550 11,875
Care Commission, SF 12/1/19 @ 100
Hospital Revenue Bonds,
Pitt County Memorial
Hospital, 4.75% Due
12/1/2028
5. 200,000 North Carolina Eastern AAA 1/1/08 @ 101 197,500 5.468 10,750
Municipal Power Agency,
Power System Revenue
Refunding Bonds, MBIA
Insured, 5.375% Due
1/1/2024
6. 250,000 University of North AAA 10/1/08 @ 101 224,665 5.350 11,250
Carolina, System Pooled SF 10/1/14 @ 100
Revenue Bonds, MBIA
Insured, 4.50% Due
10/1/2018
7. 250,000 Housing Authority of the A- 5/1/09 @ 102 249,750 5.882 14,687
City of Raleigh, North SF 5/1/20 @ 100
Carolina, Multi-Family
Housing Mortgage Revenue
Bonds, Cedar Point
Apartments and Cinnamon
Ridge Apartments, 5.875%
Due 11/1/2024
</TABLE>

A-22
<PAGE>

TAX EXEMPT SECURITIES TRUST

NORTH CAROLINA TRUST 11--PORTFOLIO OF SECURITIES

AS OF JULY 15, 1999

8. $ 300,000 Northern Hospital AA 10/1/09 @ 102 $ 295,623 5.600% $ 16,500
District of Surry SF 10/1/20 @ 100
County, North Carolina,
Health Care Facilities
Revenue Bonds, Asset
Guaranty Insured, 5.50%
Due 10/1/2029
---------- ---------- --------
$2,000,000 $1,916,436 $104,437
========== ========== ========
</TABLE>

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

A-23
<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 May 19,
1999, through July 15, 1999, with the settlement date on July 21, 1999. The
Profit to the Sponsor on Deposit totals $14,322 for the California Trust,
$17,667 for the Maryland Trust, $19,402 for the New York Trust and $13,031
for the North Carolina Trust.

(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 on Date of Deposit was computed on the basis
of offering prices on the date of deposit. On July 15, 1999, the aggregate
bid price of the Bonds was $2,865,410 for the California Trust, $1,912,515
for the Maryland Trust, $2,868,251 for the New York Trust and $1,908,436
for the North Carolina Trust.

A-24
<PAGE>

PROSPECTUS--Part B:
- --------------------------------------------------------------------------------

Note that Part B of this Prospectus may not be distributed unless accompanied
by Part A.
- --------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST

The Trusts

For over 20 years, Tax Exempt Securities Trust has specialized in quality
municipal bond investments designed to meet a variety of investment objectives
and tax situations. Tax Exempt Securities Trust is a convenient and cost
effective alternative to individual bond purchases. Each Trust is one of a
series of similar but separate unit investment trusts. A unit investment trust
provides many of the same benefits as individual bond purchases. However, while
receiving many of the benefits, the holder of Units (the "Holder") avoids the
complexity of analyzing, selecting and monitoring a multi-bond portfolio. Each
Trust is also 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 Salomon Smith Barney Inc., as
Sponsor, The Chase Manhattan Bank, as Trustee, and Kenny S&P Evaluation
Services, a business unit of J.J. Kenny Company, Inc., as Evaluator. Each Trust
containing Bonds of a State for which such Trust is named (a "State Trust") and
each National Trust is referred to herein as the "Trust" and together they are
referred to as "Trusts." 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 (the "Deposited Units"). The
Bonds and Deposited Units (if any) are referred to herein collectively as the
"Securities." After the deposit of the Securities and the creation of the
Trusts, the Trustee delivered to the Sponsor registered certificates of
beneficial interest (the "Certificates") representing the units (the "Units")
comprising the entire ownership of each Trust. These Units are now being
offered hereby. References to multiple Trusts herein should be read as
references to a single Trust if Part A indicates the creation of only one
Trust.

Objectives

The objectives of a Trust are tax-exempt income and conservation of capital
through an investment in a diversified portfolio of municipal bonds. There is
no guarantee that a Trust's objectives will be achieved.

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:

. whether the interest on the Bonds selected would be exempt from Federal
and/or state income taxes imposed on the Holders;

. whether the Bonds were rated "A" or better by a major bond rating agency;

. the maturity dates of the Bonds (including whether such Bonds may be
called or redeemed prior to their stated maturity);

. the diversity of the types of Bonds; and

. the cost of the Bonds relative to what the Sponsor believes is their
value.

The Units

Each Unit in a Trust represents a fractional undivided interest in the
principal and net income of such Trust. If any Units are redeemed after the
date of this Prospectus, the principal amount of Bonds in the Trust will be
reduced by an amount allocable to redeemed Units. Also, the fractional
undivided interest in the Trust represented by each unredeemed

B-1
<PAGE>

Unit will be increased. Units will remain outstanding until redeemed or until
the termination of the Trust.

RISK FACTORS

An investment in Units is subject to the following risks.

Failure of Issuers to Pay Interest and/or Principal

The primary risk associated with an investment in Bonds is that the issuer of
the Bond will default on principal and/or interest payments when due on the
Bond. Such a default would have the effect of lessening the income generated by
the Trust and/or the value of the Trust's Units. The bond ratings assigned by
major rating organizations are an indication of the issuer's ability to make
interest and principal payments when due on its bonds. Subsequent to the date
of deposit the rating assigned to a bond may decline. Neither the Sponsor nor
the Trustee shall be liable in any way for any default, failure or defect in
any bond.

Original Issue Discount Bonds and Zero Coupon Bonds

Certain of the Bonds in the Trust may be original issue discount bonds and/or
zero coupon bonds. Original issue discount bonds are bonds originally issued at
less than the market interest rate. Zero coupon bonds are original issue
discount bonds that do not provide for the payment of current interest. For
Federal income tax purposes, original issue discount on such bonds must be
accrued over the terms of such bonds. On sale or redemption, the difference
between (i) the amount realized (other than amounts treated as tax-exempt
income as described below) and (ii) the tax basis of such bonds (properly
adjusted, in the circumstances described below, for the accrual of original
issue discount) will be treated as taxable income, gain or loss. The Code
requires the Trust (and therefore the Unitholders) to accrue tax-exempt
original issue discount by using the constant interest method provided for the
holders of taxable obligations. In addition, the Code provides that the basis
of a tax-exempt obligation is increased by the amount of accrued tax-exempt
original issue discount. These provisions are applicable to obligations issued
after September 3, 1982 and acquired after March 1, 1984. The Trust's tax basis
in a Bond (and a Unitholder's tax basis in its Units) is increased by an
accrued original issue discount. For Bonds issued after June 9, 1980 that are
redeemed prior to maturity, the difference between the Trust's basis, as
adjusted, and the amount received will be taxable gain or loss to the
Unitholders. All or a portion of any gain may be taxable as ordinary income.

"When Issued" and "Delayed Delivery" Bonds

Certain Bonds in a Trust may have been purchased by the Sponsor on a "when
issued" basis. Bonds purchased on a "when issued" basis have not yet been
issued by their governmental entity on the Date of Deposit (although such
governmental entity had committed to issue such Bonds). In the case of these
and/or certain other Bonds, the delivery of the Bonds may be delayed ("delayed
delivery") or may not occur. The effect of a Trust containing "delayed
delivery" or "when issued" Bonds is that Holders who purchased their Units
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. Such downward
adjustment may be necessary to account for interest accruing on such "when
issued" or "delayed delivery" Bonds during the time between their purchase of
Units and delivery of such Bonds. 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 Holders may receive after the first
year. 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.

B-2
<PAGE>

Redemption or Sale Prior to Maturity

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. 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. Such
price valuation is likely to be higher in periods of declining interest rates.
Certain of the Bonds may be sold or redeemed or otherwise mature. In such
cases, the proceeds from such events will be distributed to Holders and will
not be reinvested. Thus, no assurance can be given that a Trust will retain for
any length of time its present size and composition. To the extent that a Bond
was deposited in a Trust at a price higher than the price at which it is
redeemable, or at a price higher than the price at which it is sold, a sale or
redemption will result in a loss in the value of Units. Monthly distributions
will generally be reduced by the amount of the income which would otherwise
have been paid with respect to sold or redeemed bonds. The Estimated Current
Return and Estimated Long-Term Return of the Units may be adversely affected by
such sales or redemptions.

Market Discount

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. Bonds selling at market discounts
tend to increase in market value as they approach maturity. A market discount
tax-exempt Bond will have a larger portion of its total return in the form of
taxable ordinary income (because market discount income is taxable ordinary
income) and less in the form of tax-exempt income than a comparable Bond
bearing interest at current market rates. See "Taxes" herein.

Failure of a Contract to Purchase Bonds

In the event that any contract for the purchase of any Bond fails, the
Sponsor is authorized under the Trust Agreement to instruct the Trustee to
acquire other securities (the "Replacement Bonds") for inclusion in the
Portfolio of the affected Trust. However, in order for the Trustee to acquire
any Replacement Bonds, they must be deposited not later than the earlier of (i)
the first monthly Distribution Date of the Trust or (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:

. be a tax-exempt bond;

. have a fixed maturity or disposition date comparable to the Bond it
replaces;

. be purchased at a price that results in a yield to maturity and in a
current return which is approximately equivalent to the yield to maturity
and current return of the Bond which it replaces;

. be purchased within twenty days after delivery of notice of the failed
contracts; and

. be rated in a category of A or better by a major rating organization.

Whenever a Replacement Bond has been acquired for a Trust, the Trustee shall,
within five days thereafter, notify all Holders of such Trust of the
acquisition of the Replacement Bond.

In the event that a contract to purchase any of the Bonds fails and
Replacement Bonds are not acquired, the Trustee will, not later than the second
monthly Distribution Date, distribute to 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 Holders not later than the

B-3
<PAGE>

second monthly Distribution Date. Moreover, the failed contract may reduce the
Estimated Net Annual Income per Unit, and may lower the Estimated Current
Return and Estimated Long-Term Return of the affected Trust.

Risks Inherent in an Investment in Different Types of Bonds

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. 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. Some such factors are the entity's tax base, the extent to
which the entity relies on Federal or state aid, and other factors which are
beyond the entity's control.

Industrial Development Revenue Bonds ("IDRs"). IDRs including pollution
control revenue bonds, are tax-exempt securities issued by states,
municipalities, public authorities or similar entities to finance the cost of
acquiring, constructing or improving various projects. 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. Payment
of IDRs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Such 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.

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. Some such factors are
the level of payments received from private third-party payors and government
programs and the cost of providing health care services. There can be no
assurance that payments under governmental programs will remain at levels
comparable to present levels or will be sufficient to cover the costs
associated with their bonds. It also 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 additionally
subject to claims and legal actions by patients and others in the ordinary
course of business. 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.

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 mortgage loans to
housing projects for low to moderate income families. Single-family mortgage
revenue bonds are issued for the purpose of acquiring notes secured by
mortgages on residences. The ability of housing issuers to make debt service
payments on their obligations may be affected by various economic and non-
economic factors. Such factors include: occupancy levels, adequate rental
income in multi-family projects, the rate of default on mortgage loans
underlying single family issues

B-4
<PAGE>

and the ability of mortgage insurers to pay claims. 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. 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.
Mortgage loans are frequently partially or completely prepaid prior to their
final stated maturities. 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 reduce the amount of income that would
otherwise have been paid to Holders.

Power Facility Bonds. The ability of utilities to meet their obligations with
respect to bonds they issue is dependent on various factors. These factors
include the rates they may charge their customers, the demand for a utility's
services and the cost of providing those services. Utilities are also 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. Utilities are
additionally subject to increased costs due to governmental environmental
regulation and decreased profits due to increasing competition. Any difficulty
in obtaining timely and adequate rate increases could adversely affect a
utility's results of operations. 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.

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 a number of factors. Some such
factors are the failure of municipalities to utilize fully the facilities
constructed by these authorities, declines in revenue from user charges, rising
construction and maintenance costs, impact of environmental requirements, the
difficulty of obtaining or discovering new supplies of fresh water, the effect
of conservation programs, the impact of "no growth" zoning ordinances and 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. Some of these
factors, of which an investor should be aware, are 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. Also, in the case of public
institutions, the financial condition of the relevant state or other
governmental entity and its policies with respect to education may affect an
institution's ability to make payments on its own.

Lease Rental Bonds. Lease rental bonds are predominantly issued 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 or the purchase of equipment that will be
used by a state or local government. 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. Lease rental bonds are subject to the
risk that 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 as rental bonds cease
in the event that damage, destruction or condemnation of the project prevents
its use by the lessee. Also, 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.

Capital Improvement Facility Bonds. The Portfolio of a Trust may contain
Bonds which are in

B-5
<PAGE>

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. 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. Also, 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.

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. Thus, such a commitment 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, highways and port authorities. Airport
operating income may be affected by the ability of airlines to meet their
obligations under the agreements with airports. 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.
The Sponsor cannot predict what effect conditions may have on revenues which
are dependent for payment on these bonds.

Special Tax Bonds. Special tax bonds are payable from and secured by the
revenues derived by a municipality from a particular tax. Examples of such
special taxes are 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. 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

B-6
<PAGE>

are located. 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;
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. If fare revenues or the additional financial resources
do not increase appropriately to pay for rising operating expenses, the ability
of the issuer to adequately service the debt may be adversely affected.

Convention Facility Bonds. The Portfolio of a Trust may contain Bonds of
issuers in the convention facilities category. Bonds in the convention
facilities category include special limited obligation securities issued to
finance convention and sports facilities payable from 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.

Correctional Facility Bonds. The Portfolio of a Trust may contain Bonds of
issuers in the correctional facilities category. Bonds in the correctional
facilities category include special limited obligation securities issued to
construct, rehabilitate and purchase correctional facilities payable from
governmental rental payments and/or appropriations.

Puerto Rico Bonds. Certain of the Bonds in the Trust may be general
obligations and/or revenue bonds of issuers located in Puerto Rico. Such bonds
will be affected by general economic conditions in Puerto Rico. The economy of
Puerto Rico is fully integrated with that of the mainland United States. During
fiscal year 1998, approximately 90% of Puerto Rico's exports were to the United
States mainland, which was also the source of 61% of Puerto Rico's imports. In
fiscal 1998, Puerto Rico experienced a $8.5 billion positive adjusted
merchandise trade balance. The dominant sectors of the Puerto Rico economy are
manufacturing and services. Gross product in fiscal 1993 was $25.1 billion
($24.5 billion in 1992 prices) and gross product in fiscal 1997 was $32.1
billion ($27.7 billion in 1992 prices). This represents an increase in gross
product of 27.7% from fiscal 1993 to 1997 (13.0% in 1992 prices). According to
the Labor Department's Household Employment Survey, during fiscal 1998, total
employment increased 0.8% over fiscal 1997. The preliminary figures of gross
product for fiscal 1998, released in November 1998, was $34.7 billion ($28.5
billion in 1992 prices). This represents an increase of 8.1% (3.1% in 1992
prices) over fiscal 1997. This preliminary growth rate is 0.1% above the
original base line forecast for fiscal 1998. The Planning Board's gross product
forecast for fiscal 1999, made in February 1998, projected an increase of 2.7%
over fiscal 1998. According to the Labor Department's Household Employment
Survey, during the first five months of fiscal 1999, total employment decreased
1.2% over the same period for fiscal 1998. Total monthly employment averaged
1,124,800 during the first five months of fiscal 1999, compared to 1,138,400
over the same period in fiscal 1998. The seasonally adjusted unemployment rate
for November 1998 was 13.3%.

Year 2000 Issue

The Trusts, like other businesses and entities, could be adversely affected
if the computer systems

B-7
<PAGE>

used by the Sponsor and Trustee or other service providers to a Trust do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Sponsor
and Trustee are taking steps that they believe are reasonably designed to
address the Year 2000 Problem with respect to their computer systems. The
Sponsor and Trustee are also seeking to obtain reasonable assurances that
comparable steps are being taken by the Trusts' other service providers.
However, there can be no assurance that the Year 2000 Problem will be properly
or timely resolved so to avoid any adverse impact to each Trust. The Year 2000
Problem may also adversely affect the issuers of the Bonds contained in the
Trust to varying degrees based upon various factors. The Sponsor is unable to
predict what affect, if any, the Year 2000 Problem will have on such issuers.

Insurance

Certain Bonds (the "Insured Bonds") may be insured or guaranteed by American
Capital Access Corporation ("ACA"), Asset Guaranty Insurance Co. ("AGI"), Ambac
Assurance Corporation ("AMBAC"), Asset Guaranty Reinsurance Company ("Asset
Guaranty"), 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.
Standard & Poor's has assigned an A claims-paying ability to ACA and an AA
claims-paying ability to AGI. The ratings are subject to change at any time at
the discretion of the rating agencies.

The cost of this insurance is borne either by the issuers or previous owners
of the bonds. The Sponsor does not insure the bonds in conjunction with their
deposit in a Trust and makes no representations with regard to the adequacy of
the insurance covering any of the Insured Bonds. The insurance policies are
non-cancellable and will continue in force so long as the bonds are outstanding
and the insurers remain in business. The insurance policies guarantee the
timely payment of principal and interest on the Insured Bonds. However, the
insurance policies do not guarantee the market value of the Insured Bonds or
the value of the Units. The above 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 Date of Deposit in respect of any Bonds which might reasonably be expected
to have a material adverse effect upon the Trust. At any time after the 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 regular 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.

Tax Exemption

From time to time Congress considers proposals to tax the interest on state
and local obligations, such as the Bonds. The Supreme Court has concluded that
the U.S. Constitution does not

B-8
<PAGE>

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. See "Taxes" herein for a more detailed
discussion concerning the tax consequences of an investment in Units. Unit
holders are urged to consult their own tax advisers.

TAXES

This is a general discussion of some of the income tax consequences of the
ownership of the Units. It applies only to investors who hold the Units as
capital assets. It does not discuss rules that apply to investors subject to
special tax treatment, such as securities dealers, financial institutions and
insurance companies.

The Bonds

In the opinions of bond counsel delivered on the dates the Bonds were issued
(or in opinions to be delivered, in the case of when issued Bonds), the
interest on the Bonds is excludable from gross income for regular Federal
income tax purposes under the law in effect at that time (except in certain
circumstances because of the identity of the holder).
However, interest on the Bonds may be subject to other state and local taxes.
The Sponsor and Battle Fowler LLP have not made and will not make any review of
the procedures for the issuance of the Bonds or the basis for these opinions.

In the opinions of bond counsel referred to above, none of the interest
received on the Bonds is subject to the alternative minimum tax for
individuals. However, the interest is includible in the calculation of a
corporation's alternative minimum tax.

In the case of certain of the Bonds, the opinions of bond counsel indicate
that interest received by a substantial user of the facilities financed with
proceeds of the Bonds, or persons related thereto, will not be exempt from
regular Federal income taxes, although interest on those Bonds received by
others would be exempt. The term substantial user includes only a person whose
gross revenue derived with respect to the facilities financed by the issuance
of the Bonds is more than 5% of the total revenue derived by all users of those
facilities, or who occupies more than 5% of the usable areas of those
facilities or for whom those 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.

The opinions of bond counsel may be limited to law existing at the time the
Bonds were issued, and may not apply to the extent that future changes in law,
regulations or interpretations affect such Bonds. Interest on some or all of
the Bonds may become subject to regular Federal income tax, perhaps
retroactively to their dates 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. Failure to meet these
requirements could cause the interest on the Bonds to become taxable, thereby
reducing the value of the Bonds, subjecting holders of the Bonds to
unanticipated tax liabilities and possibly requiring the Trustee to sell the
Bonds at reduced values.

The Sponsor and Battle Fowler LLP have not made any investigation as to the
current or future owners or users of the facilities financed by the Bonds, the
amount of such persons' outstanding tax-exempt private activity bonds, or the
facilities themselves, and no one can give any assurance that future events
will not affect the tax-exempt status of the Bonds.

From time to time Congress considers proposals to tax the interest on state
and local obligations, such as the Bonds and it can be expected that similar
proposals, including proposals
for a flat tax or consumption tax, may be introduced in the future. The Sponsor
cannot predict whether

B-9
<PAGE>

additional legislation in respect of the Federal income tax status of interest
on state and local obligations may be enacted and what the effect of such
legislation would be on Bonds in the Trust. The Supreme Court has concluded
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, could adversely affect an investment in Units. The
decision does not, however, affect the current exemption from taxation of the
interest earned on the Bonds in the Trust.

The Internal Revenue Service has expanded, and is continuing to expand its
examination program with respect to tax-exempt bonds. The expanded examination
program consists of, among other measures, increased enforcement against
abusive transactions, broader audit coverage and more comprehensive information
reporting on the tax-exempt bond information returns. These developments could
affect the Bonds.

Investors should consult their tax advisors for advice with respect to the
effect of these provisions on their particular tax situation.

The Trust

In the opinion of Battle Fowler LLP, special counsel for the Sponsor, under
existing law:

The Trusts are not associations taxable as corporations for Federal
income tax purposes, and interest on the Bonds that is excludible from
Federal gross income when received by the Trusts will be excludible from
the Federal gross income of the Unit holders. Any proceeds paid under the
insurance policy described above issued to the Trusts with respect to the
Bonds and any proceeds paid under individual policies obtained by issuers
of Bonds or other parties that represent maturing interest on defaulted
obligations held by the Trusts will be excludible from Federal gross income
to the same extent as such interest would have been excludable if paid in
the normal course by the issuer of the defaulted obligations.

Each Unit holder will be considered the owner of a pro rata portion of
the Bonds and any other assets held in the Trust under the grantor trust
rules of the Code. Each Unit holder will be considered to have received its
pro rata share of income from Bonds held by the Trust on receipt by the
Trust (or earlier accrual, depending on the Unit holder's method of
accounting and depending on the existence of any original issue discount),
and each Unit holder will have a taxable event when an underlying Bond is
disposed of (whether by sale, redemption, or payment at maturity) or when
the Unit holder redeems or sells its Units.

The opinion of Battle Fowler LLP as to the tax status of the Trust is not
affected by the provision of the Trust Agreement that authorizes the
acquisition of Replacement Bonds or by the implementation of the option
automatically to reinvest principal and interest distributions from the Trust
pursuant to the Automatic Accumulation Plan, described under "Automatic
Accumulation Account" in this Part B.

Other Tax Issues

The Trust may contain Bonds issued with original issue discount. The Code
requires Unit
holders to accrue tax-exempt original issue discount by using the constant
interest method provided for the holders of taxable obligations and to increase
the basis of a tax-exempt obligation by the amount of accrued tax-exempt
original issue discount. These provisions are applicable to obligations issued
after September 3, 1982 and acquired after March 1, 1984. The Trust's tax basis
(and the Unit holder's tax basis) in a Bond is increased by any accrued
original issue discount. For Bonds issued after June 9, 1980 that are redeemed
prior to maturity, the difference between the Trust's basis, as adjusted, and
the amount received will be taxable gain or loss to the Unit holders.

B-10
<PAGE>

Unit holders should consult their own tax advisors with respect to the state
and local tax consequences of owning original issue discount bonds. It is
possible that in determining state and local taxes, interest on tax-exempt
bonds issued with original issue discount may be deemed to be received in the
year of accrual even though there is no corresponding cash payment.

The total cost of a Unit to a Unit holder, including sales charge, is
allocated among the Bonds held in the Trust (in proportion to the values of
each Bond) in order to determine the Unit holder's per Unit tax basis for each
Bond. The tax basis reduction requirements of the Code relating to amortization
of bond premium discussed below will apply separately to the per Unit cost of
each such Bond.

A Unit holder will be considered to have purchased its pro rata interest in a
Bond at a premium when it acquires a Unit if its tax cost for its pro rata
interest in the Bond exceeds its pro rata interest in the Bond's face amount
(or the issue price plus accrued original issue discount of an original issue
discount bond). The Unit holder will be required to amortize any premium over
the period remaining before the maturity or call date of the Bond. Amortization
of premium on a Bond will
reduce a Unit holder's tax basis for its pro rata interest in the Bond, but
will not result in any deduction from the Unit holder's income. Thus, for
example, a Unit holder who purchases a Unit at a price that results in a Bond
premium and resells it at the same price will recognize taxable gain equal to
the portion of the premium that was amortized during the period the Unit holder
is considered to have held such interest.

Bond premium must be amortized under the method the Unit holder regularly
employs for amortizing bond premium (assuming such method is reasonable). With
respect to a callable bond, the premium must be computed with respect to the
call price and be amortized to the first call date (and successively to later
call dates based on the call prices for those dates).

Gain (or loss) realized on a sale, maturity or redemption of the Bonds or on
a sale or redemption of a Unit is includible in gross income for Federal, state
and local income tax purposes. That gain will be capital gain (or loss),
assuming that the Unit is held as a capital asset, except for any accrued
interest, accrued original issue discount or accrued market discount. When a
Bond is sold by the Trust, taxable gain or loss will be realized by the Unit
holder equal the difference between (i) the amount received (excluding the
portion representing accrued interest) and (ii) the adjusted basis (including
any accrued original issue discount). Taxable gain (or loss) will also result
if a Unit is sold or redeemed for an amount different from its adjusted basis
to the Unit holder. The amount received when a Unit is sold or redeemed is
allocated among all the Bonds in the Trust in the same manner if the Trust had
disposed of the Bonds, and the Unit holder may exclude accrued interest,
including any accrued original issue discount, but not amounts attributable to
market discount. The return of a Unit holder's tax basis is otherwise a tax-
free return of capital.

A Unit holder may acquire its Units, or the Trust may acquire Bonds at a
price that represents a market discount for the Bonds. Bonds purchased at a
market discount tend to increase in market value as they approach maturity,
when the principal amount is payable, thus increasing the potential for taxable
gain (or reducing the potential for loss) on their redemption, maturity or
sale. Gain on the disposition of a Bond purchased at a market discount
generally will be treated as taxable ordinary income, rather than capital gain,
to the extent of accrued market discount. The administration's fiscal year 2000
budget proposal would require accrual basis taxpayers to accrue market discount
income with respect to obligations acquired after the date that the proposal is
enacted.

Long-term capital gains realized by non-corporate Unit holders (with respect
to Units and

B-11
<PAGE>

Bonds held for more than one year) will be taxed at a maximum federal income
tax rate of 20%, while ordinary income received by non-corporate Unit holders
will be taxed at a maximum federal income tax rate of 39.6%. The deductibility
of capital losses is limited to the amount of capital gain; in addition, up to
$3,000 of capital losses of noncorporate Unit holders ($1,500 in the case of
married individuals filing separate returns) may be deducted against ordinary
income. Since the proceeds from sales of Bonds, under certain circumstances,
may not be distributed pro-rata, a Unit holder's taxable income or gain for any
year may exceed its actual cash distributions in that year.

If the Trust purchases any units of a previously issued series, based on the
opinion of counsel with respect to such series the Trust's pro rata ownership
interest in the bonds of such series (or any previously issued series) will be
treated as though it were owned directly by the Trust.

Among other things, the Code provides for the following: (1) interest on
certain private activity bonds is an item of tax preference included in the
calculation of alternative minimum tax, however none of the Bonds in the Trust
is covered by this provision; (2) 75% of the amount by which adjusted current
earnings (including interest on all tax-exempt bonds) exceed alternative
minimum taxable income, as modified for this calculation, will be included in
corporate alternative minimum taxable income; (3) subject to certain
exceptions, no financial institution is allowed a deduction for interest
expense allocable to tax-exempt interest on bonds acquired after August 7,
1986; (4) the amount of the deduction
allowed to property and casualty insurance companies for underwriting loss is
decreased by an amount determined with regard to tax-exempt interest income and
the deductible portion of dividends received by such companies; (5) an issuer
must meet certain requirements on a continuing basis in order for interest on a
bond to be tax-exempt, with failure to meet such requirements resulting in the
loss of tax exemption; and (6) the branch profits tax on U.S. branches of
foreign corporations may have the effect of taxing a U.S. branch of a foreign
corporation on the interest on bonds otherwise exempt from tax.

The Code provides that a portion of social security benefits is includible in
taxable income for taxpayers whose "modified adjusted gross income" combined
with a portion of their social security benefits exceeds a base amount. The
base amount is $25,000 for an individual, $32,000 for a married couple filing a
joint return and zero for married persons filing separate returns. Interest on
tax-exempt bonds is added to adjusted gross income for purposes of determining
whether an individual's income exceeds this base amount.

Certain S corporations, with accumulated earnings and profits from years in
which they were subject to regular corporate tax, may be subject to minimum tax
on excess passive income, including tax-exempt interest.

If borrowed funds are used by a Unit holder to purchase or carry Units of the
Trust, interest on such indebtedness will not be deductible for Federal income
tax purposes. Fees and expenses of the Trust will also not be deductible. 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 are
applicable for purposes of state and local taxation.

After the end of each calendar year, the Trustee will furnish to each Unit
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 Unit holder and to the Internal Revenue Service. Unit holders
are required

B-12
<PAGE>

to report to the Internal Revenue Service the amount of tax-exempt interest
received during the year.

EXPENSES AND CHARGES

Initial Expenses

Investors will reimburse the Sponsor on a per Unit basis, all or a portion of
the estimated costs incurred in organizing 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. The estimated organization costs will be
paid to the Sponsor from the assets of a Trust as of the close of the initial
public offering period. To the extent that actual organization costs are less
than the estimated amount, only the actual organization costs will be deducted
from the assets of a Trust. To the extent that actual organization costs are
greater than the estimated amount, only the estimated organization costs added
to the Public Offering Price will be reimbursed to the Sponsor. Any balance of
the costs 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.

Fees

The Trustee's, Evaluator's and Sponsor's fees are set forth under the Summary
of Essential Information. The Trustee receives for its services as Trustee
payable in monthly installments, the amount set forth under Summary of
Essential Information. The Trustee's fee is based on the principal amount of
Bonds contained in the Trust during the preceding month. The Trustee also
receives benefits to the extent that it holds funds on deposit in the various
non-interest bearing accounts created under the Indenture.

The Evaluator's fee, which is earned for Bond evaluations, is received for
each evaluation of the Bonds in a Trust as set forth under Summary of Essential
Information.

The Sponsor's fee, which is earned for trust supervisory services, is based
on the largest number of Units outstanding during the year. The Sponsor's fee,
which is not to exceed the maximum amount set forth under Summary of Essential
Information, may exceed the actual costs of providing supervisory services for
the Trust. However, at no time will the total amount the Sponsor receives for
trust supervisory services rendered to all series of Tax Exempt Securities
Trusts in any calendar year exceed the aggregate cost to it of supplying these
services in that year. In addition, the Sponsor may also be reimbursed for
bookkeeping or other administrative services provided to the Trust in amounts
not exceeding its cost of providing those services.

The fees of the Trustee, Evaluator and Sponsor may be increased without
approval of Holders in proportion to increases under the classification "All
Services Less Rent" in the Consumer Price Index published by the United States
Department of Labor.

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, the Trust will also pay expenses associated with
updating the Trusts' registration statements and maintaining registration or
qualification of the Units and/or a Trust under Federal or state securities
laws subsequent to initial

B-13
<PAGE>

registration. Such expenses shall include legal fees, accounting fees,
typesetting fees, electronic filing expenses and regulatory filing fees. The
expenses associated with updating registration statements have been
historically paid by a unit investment trust's sponsor. Any payments received
by the Sponsor reimbursing it for payments made to update Trusts' registration
statements will not exceed the costs incurred by the Sponsors.

The Trusts shall further incur expenses associated with 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. All direct distribution expenses of the Trusts (including the costs
of maintaining the secondary market for the Trusts), such as printing and
distributing prospectuses, and preparing, printing and distributing any
advertisements or sales literature, will be paid at no cost to the Trusts.

PUBLIC OFFERING

Offering Price

During the initial public offering period, the Public Offering Price of the
Units 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, as set forth in the table below. In
addition, during the initial public offering period a portion of the Public
Offering Price per Unit also consists of cash in an amount sufficient to pay
the per Unit portion of all or a part of the cost incurred in organizing and
offering a Trust. 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 to the
purchaser is also added to the Public Offering Price.

During the initial public offering period, the sales charge and dealer
concession for the Trusts will be reduced as follows:

<TABLE>
<CAPTION>
Percent of Percent of
Public Net Amount Dealer
Units Purchased+ Offering Price Invested Concession
- ---------------- -------------- ---------- ----------
<S> <C> <C> <C>
1-99 4.70% 4.932% $33.00
100-249 4.25% 4.439% $32.00
250-499 4.00% 4.167% $30.00
500-999 3.50% 3.627% $25.00
1,000 or more 3.00% 3.093% $20.00
</TABLE>
- ------------
+ The 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. Units
held in the name of the spouse or child under the age of 21 of the purchaser
are deemed to be registered in the name of the purchaser for purposes of
calculating the applicable sales charge.

The Sponsor may at any time change the amount by which the sales charge is
reduced, or discontinue the discount completely.

Employees of the Sponsor and its subsidiaries, affiliates and employee-
related accounts may purchase Units at a Public Offering Price equal to the
Evaluator's determination of the aggregate offering price of the Bonds per Unit
plus a sales charge of .50%. In addition, during the initial public offering
period a portion of the Public Offering Price per Unit also consists of cash in
an amount sufficient to pay the per Unit portion of all or a part of the cost
incurred in organizing and offering a Trust. After the initial public offering
period such purchases may be made at a Public Offering Price equal to the
Evaluator's determination of the aggregate bid price of the Bonds per Unit plus
a

B-14
<PAGE>

sales charge of .50%. Sales through such plans to employees of the Sponsor
result in less selling effort and selling expenses than sales to the general
public. Participants in the Smith Barney Asset OneSM Program and in the
Reinvestment Program of any series of the Trust may purchase Units at a Public
Offering Price equal to the Evaluator's determination of the aggregate offering
price of the Bonds (plus cash held by the Trust for organization and offering
costs) per Unit during the initial offering period and after the initial
offering period at a Public Offering Price equal to the Evaluator's
determination of the aggregate bid price of the Bonds per Unit. Participants in
the Smith Barney Asset OneSM Program are subject to certain fees for specified
securities brokerage and execution services.

Method of Evaluation

During the initial public offering period, the aggregate offering price of
the Bonds is determined by the Evaluator (1) on the basis of current offering
prices for 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. Following the initial public offering period, the
aggregate bid price of the Bonds 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. The term "business day," as used
herein shall exclude Saturdays, Sundays and any day on which the New York Stock
Exchange is closed. The difference between the bid and offering prices of the
Bonds may be expected to average approximately 1 1/2% of principal amount of
the Bonds. 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%. 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.

Distribution of Units

During the initial public offering period Units of a Trust will be
distributed to the public at the Public 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 may be offered by this Prospectus at the Public
Offering Price determined in the manner provided for secondary market sales.

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." 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 Holder or become entitled to exercise the rights
of a Holder

B-15
<PAGE>

(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 Holder is the
Public Offering Price in effect at the time his order is received, plus accrued
interest. 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

While the Sponsor is not obligated to do so, its intention is 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. 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 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 Holder
desiring to dispose of its Units may be able to do so by tendering such Units
to the Trustee for redemption at the Redemption Price.

Exchange Option

Holders may exchange their Units of this series for units of any series of
Tax Exempt Securities Trust (the "Exchange Trust") available for sale in the
state in which the Holder resides. Such exchange will be 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 Holders. Therefore,
there is no assurance that the Exchange Option will be available to a Holder.
Exchanges will be effected in whole units only. If the proceeds from the Units
being surrendered are less than the cost of a whole number of units being
acquired, the exchanging Holder will be permitted to add cash in an amount to
round up to the next highest number of whole units.

An exchange of Units pursuant to the Exchange Option for units of an Exchange
Trust will generally constitute a taxable event under the Code, i.e., a Holder
will recognize a gain or loss at the time of exchange. However, an exchange of
Units of this Trust for units of any other series of the Tax Exempt Securities
Trust, which are grantor trusts for U.S. Federal income tax purposes, will not
constitute a taxable event to the extent that the underlying securities in each
trust do not differ materially either in kind or in extent. 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 (for trusts being offered in the secondary market) and offer prices (for
trusts being offered in the primary market) of the underlying securities in the
particular portfolio involved per unit plus a fixed charge of $25 per unit.
Sales to dealers will be made at prices which represent a concession. The
amount of the concession will be established at the time of sale by the
Sponsor. As an example, assume that a 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 Holder would be able to
acquire three units in the Exchange Trust for a total cost of $2,715 ($2,640
for the units and $75 for the sales charge) and would also receive $345 for the
fractional Unit.

Reinvestment Programs

Distributions of interest and/or principal are made to Holders monthly. The
Holder has the option of either receiving a monthly income check from the
Trustee or participating in one of the reinvestment programs offered by the
Sponsor provided such Holder meets the minimum qualifications of the

B-16
<PAGE>

reinvestment program and such program lawfully qualifies for sale in the
jurisdiction in which the Holder resides. Upon enrollment in a reinvestment
program, the Trustee will direct monthly interest distributions and principal
distributions to the reinvestment program selected by the Holder. Since the
Sponsor has arranged for different reinvestment alternatives Holders should
contact the Sponsor for more complete information, including charges and
expenses. The appropriate prospectus will be sent to the Holder. The 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 Holder and may be terminated at any time by the
Holder. The program may also be modified or terminated by the Trustee or the
program's Sponsor.

Sponsor's and Underwriters' Profits

The Underwriters receive a commission based on the sales charge of a
particular Trust 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 in
the amount of any difference between the cost of the Bonds to a Trust and the
purchase price of such Bonds to the Sponsor. 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 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.

In maintaining a market for the 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.

RIGHTS OF HOLDERS

Certificates

Ownership of Units may be 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 Holder may be required to pay $2.00 per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the 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 Holders of record in such
Trust 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
Holders on previous Distribution Dates.

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

B-17
<PAGE>

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. 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 Holders as of each Record Date will be made on the following
Distribution Date or shortly thereafter. Such distributions 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 $5.00 per Unit. The Monthly Income Distribution
per Unit initially will be in the amount shown under Summary of Essential
Information for a Trust. The Monthly Income Distribution 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 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 then be reimbursed, without interest, for any such advances from
funds available from the Interest Account on the next ensuing Record Date. 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 such advances 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, each
remaining Holder will be subject to a greater pro rata reduction in his Monthly
Interest Distribution. To the extent it is unable to recoup advances from the
Interest Account, the Trustee is also entitled to withdraw from the Principal
Account. Funds which are available for future distributions, payments of
expenses and redemptions are in accounts which are non-interest bearing to
Holders and are available for use by The Chase Manhattan Bank 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, accrued interest may at any point
in time be greater than the amount of interest distributed to 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 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 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.

As of the first day of each month the Trustee will deduct from the Interest
Account of a Trust amounts necessary to pay the expenses of such Trust. To the
extent there are not sufficient funds in the Interest Account to pay Trust
expenses, the Trustee is also entitled to withdraw from the Principal Account.
The Trustee also may withdraw from the accounts such amounts 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

B-18
<PAGE>

such time as the Trustee returns any part of such amounts to the appropriate
account. In addition, the Trustee may withdraw from the Interest Account and
the Principal Account such amounts as may be necessary to cover redemption of
Units by the Trustee.

The Trustee has agreed to advance to a Trust the amount of accrued interest
due on the Bonds 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 advances 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 Holders in connection with each distribution a
statement of the amount of interest and the amount of other receipts 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 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 Holder of record,
a statement (1) as to the Interest Account: interest received, 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. 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 Holders upon request.

The Trustee shall keep available for inspection by 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
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 4 New York Plaza, New York, New York 10004, upon payment of any
relevant tax. At the present time there are no specific taxes related to the

B-19
<PAGE>

redemption of the Units. No redemption fee will be charged by the Sponsor or
the Trustee. Units redeemed by the Trustee will be canceled.

Certificates for Units to be redeemed must be properly endorsed or
accompanied by a written instrument of transfer. 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 Holder will be entitled
to receive in cash an amount for each Unit tendered equal to the 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.

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 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 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 Holders
of such Trust of record as of a date prior to the evaluation. As of the close
of the initial public offering period the Redemption Price per Unit will be
reduced to reflect the organization costs per Unit of a Trust. To the extent
that actual organization costs are less than the estimated amount, only the
actual organization costs will be deducted from the assets of a Trust.

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. Such
a purchase by the Sponsor will be at the price so bid by making payment to the
Holder in an amount not less than the Redemption Price and not later than the
day on which the Units would otherwise have been redeemed by the Trustee.

The offering price of any Units resold by the Sponsor will be the Public
Offering Price

B-20
<PAGE>

determined in the manner provided in this Prospectus. Any profit resulting from
the resale of such Units will belong to the Sponsor. The Sponsor likewise will
bear any loss resulting from a lower offering or redemption price subsequent to
their acquisition of such Units.

SPONSOR

Salomon Smith Barney Inc. ("Salomon Smith Barney"), was incorporated in
Delaware in 1960 and traces its history through predecessor partnerships to
1873. On September 1, 1998, Salomon Brothers Inc. merged with and into Smith
Barney Inc. ("Smith Barney") with Smith Barney surviving the merger and
changing its name to Salomon Smith Barney Inc. The merger of Salomon Brothers
Inc. and Smith Barney followed the merger of their parent companies in November
1997. Salomon 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. Salomon Smith Barney is
an indirect wholly-owned subsidiary of Citigroup Inc. Salomon 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. Salomon 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.

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
Holders for taking any action or refraining from any action in good faith or
for errors in judgment. The Sponsor shall also not be 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.

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. Such events include: 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 Holders. The Sponsor intends to provide Portfolio supervisory
services for each Trust in order to determine whether the Trustee should be
directed to dispose of any such Bonds.

It is the responsibility of the Sponsor to instruct the Trustee to reject any
offer made by an issuer of any of the Bonds to issue new obligations in
exchange and substitution for any Bonds pursuant to a refunding or refinancing
plan. However, 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 Holder, identifying the
Bonds eliminated and

B-21
<PAGE>

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 becomes unable to perform its duties under the
Trust Agreement, and no express provision is made for action by the Trustee in
such event, the Trustee may appoint a successor sponsor or terminate the Trust
Agreement and liquidate the Trusts.

TRUSTEE

The Trustee is The Chase Manhattan Bank with its principal executive office
located at 270 Park Avenue, New York, New York 10017 and its unit investment
trust office at 4 New York Plaza, New York, New York 10004. The Trustee is
subject to supervision by the Superintendent of Banks of the State of New York,
the Federal Deposit Insurance Corporation and the Board of Governors of the
Federal Reserve System. In connection with the storage and handling of certain
Bonds deposited in the Trust, the Trustee may use the services of The
Depository Trust Company. These services may include safekeeping of the Bonds
and coupon-clipping, computer book-entry transfer and institutional delivery
services. The Depository Trust Company is a limited purpose trust company
organized under the Banking Law of the State of New York, a member of the
Federal Reserve System and a clearing agency registered under the Securities
Exchange Act of 1934.

Limitations on Liability

The Trustee shall not be liable or responsible in any way for depreciation or
loss incurred by reason of the disposition of any moneys, securities or
certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
willful misfeasance, bad faith, gross negligence or reckless disregard for its
obligations and duties. In 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.

Resignation

By executing an instrument in writing and filing the same with the Sponsor,
the Trustee and any successor may resign. In such an event the Sponsor is
obligated to appoint a successor trustee as soon as possible. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over
by public authorities, the Sponsor may remove the Trustee and appoint a
successor as provided in the Trust Agreement. Such resignation or removal shall
become effective upon the acceptance of appointment by the successor trustee.
If no successor has accepted the appointment within thirty days after notice of
resignation, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of
a trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor trustee.

EVALUATOR

The Evaluator is Kenny S&P Evaluation Services, a business unit of J.J. Kenny
Company, Inc., a subsidiary of The McGraw-Hill Companies, Inc., with main
offices located at 65 Broadway, New York, New York 10006.

Limitations on Liability

The Trustee, Sponsor and 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

B-22
<PAGE>

no liability to the Trustee, the Sponsor, or 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.

Resignation

The Evaluator may resign or may be removed by the joint action of the Sponsor
and the Trustee. Should such removal occur, 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 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 Holders. However, the Trust Agreement may not be amended to
increase the number of Units issuable 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. In the event of any amendment, the Trustee is
obligated to notify promptly all 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 Holders. However, in no event may a Trust continue beyond
the Mandatory Termination Date set forth under "Summary of Essential
Information." In the event of termination, written notice thereof will be sent
by the Trustee to all Holders. Within a reasonable period after termination,
the Trustee will sell any Bonds remaining in the affected Trust. Then after
paying all expenses and charges incurred by such Trust, the Trustee will
distribute to each 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.

MISCELLANEOUS

Legal Opinion

The legality of the Units has been passed upon by Battle Fowler LLP, 75 East
55th Street, New York, New York 10022, as special counsel for the Sponsor.

Auditors

The statements of financial condition and the portfolios of securities
included in this Prospectus have been audited by KPMG LLP, independent
auditors, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.

B-23
<PAGE>

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.

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

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

B-24
<PAGE>

service requirements is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however, while addressing credit
quality subsequent to completion, makes no comment on the likelihood of, or the
risk of default upon failure of, such completion. Accordingly, the investor
should exercise his own judgment with respect to such likelihood and risk.

Conditional rating(s), indicated by "Con" are given to bonds for which the
continuance of the security rating is contingent upon Standard & Poor's receipt
of an executed copy of the escrow agreement or closing documentation confirming
investments and cash flows and/or the security rating is conditional upon the
issuance of insurance by the respective insurance company.

Moody's

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

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

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

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

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

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

Fitch

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

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

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

B-25
<PAGE>

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-26
<PAGE>

FEDERAL TAX FREE VS. TAXABLE INCOME

This table shows the approximate yields which taxable securities must earn
in various income brackets to produce, after Federal income tax, returns
equivalent to specified tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the
entire amount of any increase or decrease in his taxable income resulting from
a switch from taxable to tax-exempt securities or vice versa. The table
reflects projected effective Federal income tax rates and tax brackets for the
1999 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.

1999 Tax Year
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Taxable Income Bracket Tax Exempt Yield
Federal Effective
Tax Federal
Joint Return Single Return Bracket Tax Rate 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
Taxable Equivalent Yield
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
43,050 $ 0- 25,750 15.00% 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 43,051-
104,050 $ 25,751- 62,450 28.00% 28.00% 5.56 6.25 6.94 7.64 8.33 9.03
$104,051-
126,600 $ 62,451-126,600 31.00% 31.00% 5.80 6.52 7.25 7.97 8.70 9.42
$126,601-
158,550 $126,601-130,250 31.00% 31.93% 5.88 6.61 7.35 8.08 8.81 9.55
$158,551-
283,150 $130,251-283,150 36.00% 37.08% 6.36 7.15 7.95 8.74 9.54 10.33
Over
$283,150 Over $283,150 39.60% 40.79% 6.76 7.60 8.44 9.29 10.13 10.98
- ------------------------------------------------------------------------------------------
</TABLE>

Note: This table reflects the following:
1 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions.
However, certain itemized deductions are reduced by the lesser of (i)
three percent of the amount of the taxpayer's AGI over $126,600, 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 Federal tax rates through the use of higher effective Federal tax
rates. In addition, the effect of the 80 percent cap on overall itemized
deductions is not reflected on this table. Federal income tax rules also
provide that personal exemptions are phased out at a rate of two percent
for each $2,500 (or fraction thereof) of AGI in excess of $189,950 for
married taxpayers filing a joint tax return and $126,600 for single
taxpayers. The effect of the phase out of personal exemptions is not
reflected in the above table.
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest marginal tax rates applicable to the income levels
indicated within each bracket.
4 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.

B-27
<PAGE>

PROSPECTUS--Part C:
- --------------------------------------------------------------------------------

Note: Part C of this Prospectus may not be distributed unless accompanied by
Parts A and B.
- --------------------------------------------------------------------------------
TAX EXEMPT SECURITIES TRUST--THE STATE TRUSTS

Potential purchasers of the Units of a State Trust should consider the fact
that the Trust's Portfolio consists primarily of Bonds issued by the state for
which such State Trust is named or its municipalities or authorities and
realize the substantial risks associated with an investment in such Bonds. Each
State Trust is subject to certain additional risk factors. The Sponsor believes
the discussions of risk factors summarized below describe some of the more
significant aspects of the State Trusts. The sources of such information are
the official statements of issuers as well as other publicly available
documents. While the Sponsor has not independently verified this information,
it has no reason to believe that such information is not correct in all
material respects. Investment in a State Trust should be made with an
understanding that the value of the underlying Portfolio may decline with
increases in interest rates.

California Trust

Risk Factors--The following information is a brief summary of factors
affecting the economy of the State of California and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based primarily upon one or more publicly available offering
statements relating to debt offerings of California issuers; however, it has
not been updated. The Trust has not independently verified the information.

General Economic Conditions. The economy of the State of California
(sometimes referred to herein as the "State") is the largest among the 50
states and one of the largest in the world. This diversified economy has major
components in agriculture, manufacturing, high technology, trade,
entertainment, tourism, construction and services.

California's July 1, 1998 population of over 33.2 million represented over
13% of the total United States population. As of July 1, 1990 the population of
29,944,000 represented an increase of over 6 million persons, or 26%, during
the decade of the 1980s.

California's population is concentrated in metropolitan areas. As of the
April 1, 1990 census, 96% resided in the 23 Metropolitan Statistical Areas in
the State. As of July 1, 1997, the five-county Los Angeles area accounted for
49%, with 16.0 million residents. The 10-county San Francisco Bay Area
represented 21%, with a population of 6.9 million.

From 1990-1993, the State suffered through a severe recession, the worst
since the 1930s, heavily influenced by large cutbacks in defense/aerospace
industries and military base closures and by a major drop in real estate
construction. California's economy has been recovering and growing steadily
since the start of 1994. The current economic expansion is marked by strong
growth in high technology manufacturing and services, including computer
software, electronic manufacturing and motion picture/television production;
growth is also strong in other business services, both nonresidential and
residential construction and local education.

In May 1998, the State Department of Finance projected that the California
economy would continue to show robust growth through 1998, although at a
slightly slower pace than in 1997. The Asian economic crisis which began in
late 1997 was expected to have some dampening effects on the State's economy.
However, during the summer of 1998, the soaring trade deficit, continuing
weakness in Asia, initial signs of economic weakness in Canada and Latin
America, which have been California's largest trading partners, and the fall in
stock prices worldwide all suggests that the May forecasts were too optimistic,
particularly for 1999. Other impacts of the international situation may help
California, such as the reduction in long-term interest rates.

C-1
<PAGE>

The State: Fiscal Years Prior to 1995-96. The State's budget problems in the
early 1990s were caused by a combination of external economic conditions and a
structural imbalance in that the largest general fund programs (K-14 education,
health, welfare and corrections) were increasing faster than the revenue base,
driven by the State's rapid population growth. The pressures are expected to
continue as population trends maintain strong demand for health and welfare
services, as the school age population continues to grow, and as the State's
corrections program responds to a "Three Strikes" law enacted in 1994, which
requires mandatory life prison terms for certain third-time felony offenders.
In addition, the State's health and welfare programs are in a transition period
as a result of recent federal and state welfare reform initiatives.

As a result of these factors and others, and especially because a severe
recession between 1990-1994 reduced revenues and increased expenditures for
social welfare programs, from the late 1980s until 1992-93, the State had a
period of budget imbalance. During this period, expenditures exceeded revenues
in four out of six years, and the State accumulated and sustained a budget
deficit in its budget reserve, the Special Fund for Economic Uncertainties
("SFEU") approaching $2.8 billion at its peak at June 30, 1993. Starting in the
1990-91 Fiscal Year and for each fiscal year thereafter, each budget required
multibillion dollar actions to bring projected revenues and expenditures into
balance.

Despite various remedial actions taken by the State, the effects of the
recession led to large, unanticipated deficits in the budget reserve, the SFEU,
as compared to projected positive balances. By the 1993-94 Fiscal Year, the
accumulated deficit was so large that it was impractical to budget to retire it
in one year, so a two-year program was implemented, using the issuance of
revenue anticipation warrants to carry a portion of the deficit over the end of
the fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, again using cross-fiscal year
revenue anticipation warrants to partly finance the deficit into the 1995-96
fiscal year. For several years during the recession, the State was forced to
rely increasingly on external debt markets to meet its cash needs, as a
succession of notes and revenue anticipation warrants were issued in the period
from June 1992 to July 1994, often needed to pay previously maturing notes or
warrants. These borrowings were used also in part to spread out the repayment
of the accumulated budget deficit over the end of a fiscal year.

1995-96 through 1997-98 Fiscal Years. The State's financial condition
improved markedly during the 1995-96, 1996-97 and 1997-98 fiscal years, with a
combination of better than expected revenues, slowdown in growth of social
welfare programs, and continued spending restraint based on the actions taken
in earlier years. The State's cash position also improved, and no external
deficit borrowing has occurred over the end of these three fiscal years.

The economy grew strongly during these fiscal years, and as a result, the
General Fund took in substantially greater tax revenues (around $2.2 billion in
1995-96, $1.6 billion in 1996-97 and $2.2 billion in 1997-98) than were
initially planned when the budgets were enacted. These additional funds were
largely directed to school spending as mandated by Proposition 98, and to make
up shortfalls from reduced federal health and welfare aid in 1995-96 and 1996-
97. The accumulated budget deficit from the recession years was finally
eliminated. The Department of Finance estimates that the State's budget reserve
(SFEU) totaled $639.8 million as of June 30, 1997 and $1.782 billion at June
30, 1998.

On August 18, 1997, the Governor signed the 1997-98 Budget Act, but vetoed
about $314 million of specific spending items, primarily in health and welfare
and education areas from both the General Fund and Special Funds. The Governor
announced that he was prepared to restore about $200 million of education
spending upon satisfactory completion of legislation on an education testing
program.

C-2
<PAGE>

The 1997-98 Budget Act anticipated General Fund revenues and transfers of
$52.5 billion (a 6.8% increase over the final 1996-97 amount), and expenditures
of $52.8 billion (an 8.0% increase from the 1996-97 levels). On a budgetary
basis, the budget reserve (SFEU) was projected to decrease from $408 million at
June 30, 1997 to $112 million at June 30, 1998. As of January 9, 1998, the
State Director of Finance estimated a reserve of $329 million at June 30, 1998.
(The expenditure figure assumes restoration of $200 million in vetoed funding.)
The Budget Act also included Special Fund expenditures of $14.4 billion (as
against estimated Special Fund revenues of $14.0 billion), and $2.1 billion of
expenditures from various Bond Funds. The State implemented its normal annual
cash flow borrowing program, issuing $3 billion of notes which matured on June
30, 1998.

Federal Welfare Reform. Congress passed and the President signed (on August
22, 1996) the Personal Responsibility and Work Opportunity Act of 1996 (the
"Law") making a fundamental reform of the current welfare system. Among many
provisions, the Law includes: (i) conversion of Aid to Families with Dependent
Children from an entitlement program to a block grant titled Temporary
Assistance for Needy Families (TANF), with lifetime time limits on TANF
recipients, work requirements and other changes; (ii) provisions denying
certain federal welfare and public benefits to legal noncitizens, allowing
states to elect to deny additional benefits (including TANF) to legal
noncitizens, and generally denying almost all benefits to illegal immigrants;
and (iii) changes in the Food Stamp program, including reducing maximum
benefits and imposing work requirements.

As part of the 1997-98 Budget Act legislative package, the State Legislature
and Governor agreed on a comprehensive reform of the State's public assistance
programs to implement the new federal Law. The new basic State welfare program
is called California Work Opportunity and Responsibility to Kids Act
("CalWORKs"), which replaces the former Aid to Families with Dependent Children
(AFDC) and Greater Avenues to Independence (GAIN) programs effective January 1,
1998. Consistent with the federal Law, CalWORKs contains new time limits on
receipt of welfare aid, both lifetime as well as for any current time on aid.
Administration of the new Welfare-to-Work programs will be largely at the
county level, and counties are given financial incentives for success in this
program.

Although the longer-term impact of the new federal Law and CalWORKs cannot be
determined until there has been some experience, the State does not presently
anticipate that these new programs will have any adverse financial impact on
the General Fund. Overall TANF grants from the federal government are expected
to equal or exceed the amounts the State would have received under the old AFDC
program.

1999-2000 Fiscal Year. Pursuant to Article IV, Section 13(c) of the
Constitution of the State of California, the State Legislature is required to
adopt its budget for the upcoming fiscal year (July 1-June 30) by midnight of
June 15th, and in the absence of which, the Legislature may not send to the
Governor for consideration any bill appropriating funds for expenditure during
the fiscal year for which the budget bill is to be enacted, except emergency
bills or appropriations for the salaries and expenses of the Legislature. On
January 8, 1999, newly-elected Governor Davis released his proposed budget for
the 1999-2000 Fiscal Year (the "Proposed Budget"). The Proposed Budget
estimated general fund revenues and transfers in 1999-2000 of $60.3 billion, a
7.1% increase from revised 1998-99 figures. The Governor proposed expenditures
of $60.5 billion, a 3.8% increase from 1998-99. The Proposed Budget projected a
balance in the SFEU of $414.5 million on June 30, 2000. For the first time
since 1993, as had been true since the late 1980s, the June 30 deadline for
signing the budget into law was met. Due to the Legislature's failure to comply
with this constitutional requirement, the Howard Jarvis Taxpayers Association
sought an injunction in a Los

C-3
<PAGE>

Angeles Superior Court to prohibit the State from making certain types of
payments in the absence of an adopted budget. On July 21, 1998, a preliminary
injunction was issued. Under the terms of the injunction order, until such time
as the budget was adopted, the State was precluded from making any payments
from the State treasury for Fiscal Year 1998-99 except for certain enumerated
expenditures. The budget for Fiscal Year 1999-2000 was passed by the
Legislature on June 16, 1999, and the Governor signed it on June 29, 1999 (the
"Budget").

Significant features of the Budget are as follows:

. Proposition 98 funding for K-12 is expanded to $37.9 billion, an increase
of $2.3 billion over 1998-99. Proposition 98 per-pupil spending has
increased to $6,025, which is $274 over the 1998-99 level. $444 million
of the Proposition 98 funding will support a package of initiatives to
significantly improve student academic achievement to be focused in three
major areas: textbooks and library materials ($134 million), enhancing
professional quality ($50 million) and increasing school accountability
($192 million).

. Funding for higher education increased. The Budget provides the
University of California with $184 million in new funding and the
California State University system with $126 million. The Budget also
includes additional growth of funding to community college districts,
with growth by $324.3 million, an increase of 6.6 percent.

. The Budget incorporates $425 million, in addition to the $50 million
provided in the 1998-99 Budget, to capitalize the California
Infrastructure and Economic Development Bank. The Bank will leverage
those funds to generate about $1.9 billion in low interest rate loans to
local agencies to assist with needed infrastructure to support economic
development. Projects are expected to include roadways, sewers, water
treatment and delivery systems and utilities.

. With respect to public safety, among other things the Budget provides
$38.7 million for various programs that provide treatment for state
prison inmates and parolees to assist in their transition back into the
community and to reduce recidivism, $30 million for grants to local law
enforcement agencies to address one-time equipment needs, and $24 million
for planning and acquisition of new state prison.

. The Budget contains approximately $157 million for restoration of
California's State Parks, including $137 million for deferred
maintenance, $10 million for cultural heritage projects and $10 for
natural heritage projects. The Budget also contains $158 million for land
acquisitions to preserve open spaces, improve and protect natural
habitats and enhance public access to the State's natural resources. $23
million is budgeted to continue and expand the Air Quality Standards
Attainment Program, which will also be expanded to begin addressing
infrastructure needs such as electric vehicle refueling stations and
research and development.

. With regard to tax relief, the Budget cuts the vehicle license fee an
additional 10 percent over the cuts made in the 1999 Budget, resulting in
a cumulative 35 percent cut from 1998 base levels. The Budget provides
for a permanent exclusion of 50 percent of capital gains on small
business stock held over five years, eliminates the first two years of
the minimum franchise tax for new corporations and conforms to federal
law by increasing the deduction for health insurance for the self-
employed.

. The Budget contains $249.4 million to expand HIV/AIDS education,
prevention, care and treatment services, as well as $213.2 million to
continue and expand the Healthy

C-4
<PAGE>

Families Program to provide health care coverage to approximately 295,000
uninsured children in low-income families. The Budget provides $82 million
to expand Medi-Cal eligibility to approximately 250,000 more Californians,
and $72 million to increase staffing hours provided per patient per day
with respect to Medi-Cal Nursing Home Care.

. The Budget contains a one-time subvention of $150 million from the
General Fund to local agencies to provide Educational Revenue
Augmentation Fund relief, and an $18 million augmentation for Public
Library Foundation Program which allocates funds to local public
libraries for basic library services, representing a 46 percent increase
over the 1998-99 level of $38.9 million.

. Capital outlay expenditures are increased by $1.3 billion or 49 percent
over 1998-99 and grants to local transportation agencies for local street
and highway projects are increased by $599 million (nearly 44 percent).

. The Budget also contains $128 million to fund workload increases and high
priority programmatic improvements such as funding for Year 2000
compliance of court computer systems, negotiated salary increases for
trial court employees, 20 new judgeships, increased court perimeter
security, judicial officer and staff training and an increase in
compensation for trial court interpreters.

Local Government. The primary units of local government in California are the
counties, ranging in population from 1,300 (Alpine) to over 9,000,000 (Los
Angeles). Counties are responsible for the provision of many basic services,
including indigent healthcare, welfare, courts, jails and public safety in
unincorporated areas. There are also about 480 incorporated cities and
thousands of other special districts formed for education, utility and other
services. The fiscal condition of local governments has been constrained since
the enactment of "Proposition 13" in 1978, which reduced and limited the future
growth of property taxes and limited the ability of local governments to impose
"special taxes" (those devoted to a specific purpose) without two-thirds voter
approval. Counties, in particular, have had fewer options to raise revenues
than many other local government entities, and have been required to maintain
many services.

The entire statewide welfare system has been changed in response to the
change in federal welfare law enacted in 1996 (see "Federal Welfare Reform"
above). Under the CalWORKs program, counties are given flexibility to develop
their own plans, consistent with State law, to implement Welfare-to-Work and to
administer many of its elements and their costs for administrative and support
services are capped at 1996-97 levels. Counties are also given financial
incentives if, at the individual county level or statewide, the CalWORKs
program produces savings associated with specified Welfare-to-Work outcomes;
counties may also suffer penalties for failing to meet federal standards. Under
CalWORKs, counties will still be required to provide "general assistance" aid
to certain persons who cannot obtain welfare from other programs.

Historically, funding for the State's trial court system was divided between
the State and the counties. However, Chapter 850, Statutes of 1997, implements
a restructuring of the State's trial court funding system. In 1997-98, funding
for the courts, with the exception of costs for facilities, local judicial
benefits, and revenue collection, was consolidated at the State level. The
county contribution for both their general fund and fine and penalty amounts is
capped at the 1994-95 level and becomes part of the Trial Court Trust Fund,
which supports all trial court operations. The State assumes responsibility for
future growth in trial court funding. This consolidation is intended to
streamline the operation of the courts, provide a dedicated revenue source, and
relieve fiscal pressure on the counties. Beginning in 1998-99, county general
fund

C-5
<PAGE>

contribution for court operations is reduced by $300 million, including $10.7
million to buy out the contribution of the 20 smallest counties, and cities
will retain $62 million in fine and penalty revenue previously remitted to the
State; the State's general fund backfilled the $362 million revenue loss to the
Trial Court Trust Fund. In addition to this general fund backfill, a $50
million augmentation is included in the 1998 Budget Act for the trial courts to
fund workload increase and high priority issues such as court security. In
1999-2000, county general fund contributions will be further reduced by an
additional $92 million to buy out the next 17 smallest counties and reduce by
ten percent the general fund contribution of the remaining 21 counties.

In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recent recession, the Legislature has
eliminated the remnants of this post-Proposition 13 aid to entities other than
K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected. Orange County
implemented significant reductions in services and personnel, and continues to
face fiscal constraints in the aftermath of its bankruptcy, which had been
caused by large investment losses in its pooled investment funds.

On November 5, 1996, voters approved Proposition 218, entitled the "Right to
Vote on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges
and assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives. There are a number of
ambiguities concerning the Proposition and its impact on local governments and
their bonded debt which will require interpretation by the courts or the State
Legislature. The State Legislative Analyst estimated that enactment of
Proposition 218 would reduce local government revenues statewide by over $100
million a year, and that over time, annual revenue to local government would be
reduced by several hundred million dollars. Proposition 218 does not affect the
State or its ability to levy or collect taxes.

On December 23, 1997, a consortium of California counties filed a test claim
with the Commission on State Mandates (the "Commission") asking the Commission
to determine whether the property tax shift from counties to the Educational
Revenue Augmentation Fund, which is a funding source for schools, is a
reimbursable state mandated cost. On August 11, 1998, the State Department of
Justice, on behalf of the State Department of Finance, filed a rebuttal in
opposition to the counties' claims. The issue is currently scheduled to be
heard by the Commission on October 22, 1998. The fiscal impact to the State
general fund if the Commission determines that the property tax shifts created
a reimbursable state mandate could total approximately $8 billion for the 1996-
97 ($2.5 billion), 1997-98 ($2.6 billion) and 1998-99 ($2.7 billion) property
tax shifts. Ongoing costs to the State general fund would be approximately $2.7
billion annually.

Constitutional and Statutory Limitations; Recent Initiatives; Pending
Legislation. Article XIIIA of the California Constitution (which resulted from
the voter-approved Proposition 13 in 1978) limits the taxing powers of
California public agencies. Article XIIIA provides that the maximum ad valorem
tax on real property cannot exceed 1% of the "full cash value" of the property
and effectively prohibits the levying of any other ad

C-6
<PAGE>

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

Article XIIIB of the California Constitution limits the amount of
appropriations of the State and of the local governments to the amount of
appropriations of the entity for the prior year, adjusted for changes in the
cost of living, population and the services that local government has financial
responsibility for providing. To the extent that the revenues of the State
and/or local government exceed its appropriations, the excess revenues must be
rebated to the public either directly or through a tax decrease. Expenditures
for voter-approved debt services are not included in the appropriations limit.

At the November 9, 1988 general election, California voters approved an
initiative known as Proposition 98. This initiative amends Article XIIIB to
require that (i) the California Legislature establish a prudent state reserve
fund in an amount it shall deem reasonable and necessary and (ii) revenues in
excess of amounts permitted to be spent and which would otherwise be returned
pursuant to Article XIIIB by revision of tax rates or fee schedules be
transferred and allocated (up to a maximum of 40%) to the State School Fund and
be expended solely for purposes of instructional improvement and
accountability. Proposition 98 also amends Article XVI to require that the
State of California provide a minimum level of funding for public schools and
community colleges. Commencing with the 1988-89 Fiscal Year, money to be
applied by the State for the support of school districts and community college
districts shall not be less than the greater of: (i) the amount which, as a
percentage of the State general fund revenues which may be appropriated
pursuant to Article XIIIB, equals the percentage of such State general fund
revenues appropriated for school districts and community college districts,
respectively, in Fiscal Year 1986-87 or (ii) the amount required to ensure that
the total allocations to school districts and community college districts from
the State general fund proceeds of taxes appropriated pursuant to Article XIIIB
and allocated local proceeds of taxes shall not be less than the total amount
from these sources in the prior year, adjusted for increases in enrollment and
adjusted for changes in the cost of living pursuant to the provisions of
Article XIIIB. The initiative permits the enactment of legislation, by a two-
thirds vote, to suspend the minimum funding requirements for one year. As a
result of Proposition 98, funds that the State might otherwise make available
to its political subdivisions may be allocated instead to satisfy such minimum
funding level.

During the recent recession, general fund revenues for several years were
less than originally projected, so that the original Proposition 98
appropriations turned out to be higher than the minimum percentage provided in
the law. The Legislature responded to these developments by designating the
"extra" Proposition 98 payments in one year as a "loan" from future years'
Proposition 98 entitlements and also intended that the "extra" payments would
not be included in the Proposition 98 "base" for calculating future years'
entitlement. By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from Fiscal Year
1991-92 to Fiscal Year 1993-94.

In 1992, a lawsuit was filed, call California Teachers' Association v. Gould,
which challenged

C-7
<PAGE>

the validity of these off-budget loans. The settlement of this case, finalized
in July 1996, provides, among other things, that both the State and K-14
schools share in the repayment of prior years' emergency loans to schools. Of
the total $1.76 billion in loans, the State will repay $935 million by
forgiveness of the amount owed, while schools will repay $825 million. The
State's share of the repayment will be reflected as an appropriation above the
current Proposition 98 base calculation. The schools' share of the repayment
will count as appropriations that count toward satisfying the Proposition 98
guarantee, or from "below" the current base. Repayments are spread over the
eight-year period of 1994-95 through 2001-02 to mitigate any adverse fiscal
impact.

Substantially increased general fund revenues, above initial budget
projections, in the 1994-95, 1995-96 and 1996-97 Fiscal Years have resulted or
will result in retroactive increases in Proposition 98 appropriations from
subsequent fiscal years' budgets.

On November 8, 1994, the voters approved Proposition 187, an initiative
statute ("Proposition 187"). Proposition 187 specifically prohibits funding by
the State of social services, health care services and public school education
for the benefit of any person not verified as either a United States citizen or
a person legally admitted to the United States. Among the provisions in
Proposition 187 pertaining to public school education, the measure requires,
commencing January 1, 1995, that every school district in the State verify the
legal status of every child enrolling in the district for the first time. By
January 1, 1996, each school district must verify the legal status of children
already enrolled in the district and of all parents or guardians of all
students. If the district "reasonably suspects" that a student, parent or
guardian is not legally in the United States, that district must report the
student to the United States Immigration and Naturalization Service and certain
other parties. The measure also prohibits a school district from providing
education to a student it does not verify as either a United States citizen or
a person legally admitted to the United States. The State Legislative Analyst
estimates that verification costs could be in the tens of millions of dollars
on a statewide level (including verification costs incurred by other local
governments), with first-year costs potentially in excess of $100 million.

The reporting requirements may violate the Family Educational Rights and
Privacy Act ("FERPA"), which generally prohibits schools that receive Federal
funds from disclosing information in student records without parental consent.
Compliance with FERPA is a condition of receiving Federal education funds,
which total $2.3 billion annually to California school districts. The Secretary
of the United States Department of Education has indicated that the reporting
requirements in Proposition 187 could jeopardize the ability of school
districts to receive these funds.

Opponents of Proposition 187 filed at least eight lawsuits (which were
subsequently consolidated) challenging the constitutionality and validity of
the measure. On March 18, 1998, a United States District Court judge entered a
final judgment in the case, holding key portions of the measure
unconstitutional and permanently enjoining the State from implementing those
sections which would have required law enforcement, teachers and social
services and health care workers to verify a person's immigration status and
subsequently report illegal immigrants to authorities and deny them social
services, health care and education benefits. An appeal by the State Attorney
General was filed with the Ninth Circuit Court of Appeals on March 25, 1998 and
is pending.

Pending Litigation. The State is a party to numerous legal proceedings, many
of which normally occur in governmental operations. Some of the more
significant lawsuits pending against the State are described herein.

The State is involved in a lawsuit, Thomas Hayes v. Commission on State
Mandates, related to state-mandated costs. The action involves an appeal

C-8
<PAGE>

by the Director of Finance from a 1984 decision by the State Board of Control
(now succeeded by the Commission on State Mandates). The Board of Control
decided in favor of local school districts' claims for reimbursement for
special education programs for handicapped students. The case was then brought
to the trial court by the State and later remanded to the Commission for
redetermination. The Commission on State Mandates has since expanded the claim
to include supplemental claims filed by seven other educational institutions;
the issuance of a final consolidated decision is anticipated sometime in early
1999. To date, the Legislature has not appropriated funds. The liability to the
State, if all potentially eligible school districts pursue timely claims, has
been estimated by the Department of Finance at more than $1 billion.

The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J.B. Stringfellow, Jr., et al., the State is seeking recovery for
post costs of cleanup of the site, a declaration that the defendants are
jointly and severally liable for future costs, and an injunction ordering
completion of the cleanup. However, the defendants have filed a counterclaim
against the State for alleged negligent acts. Because the State is the present
owner of the site, the State may be found liable. Present estimates of the
cleanup range from $300 million to $800 million.

The State is a defendant in a coordinated action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of February 1986.
The appellate court affirmed the trial court finding of liability in inverse
condemnation and awarded damages of $500,000 to 12 sample plaintiffs. Potential
liability to the remaining 300 plaintiffs, from claims filed, ranges from $800
million to $1.5 billion. An appeal has been filed.

In the case of Board of Administration, California Public Employees'
Retirement System, et al. v. Pete Wilson, Governor, et al., plaintiffs
challenged the constitutionality of legislation which deferred payment of the
State's employer contribution to the Public Employees' Retirement System
("PERS") beginning in Fiscal Year 1992-93. On January 11, 1995, the Sacramento
County Superior Court entered a judgment finding that the legislation
unconstitutionally impaired the vested contract rights of PERS members. The
judgment provides for issuance of a writ of mandate directing State defendants
to disregard the provisions of the legislation, to implement the statute
governing employer contributions that existed before the changes in the
legislation were found to be unconstitutional and to transfer to PERS the
contributions that were unpaid to date. On February 19, 1997, the State Court
of Appeals affirmed the decision of the Superior Court, and the Supreme Court
subsequently refused to hear the case, making the Court of Appeals' ruling
final. On July 30, 1997, the Controller transferred $1.235 billion from the
General Fund to PERS in repayment of the principal amount determined to have
been improperly deferred. Subsequent State payments to PERS will be made on a
quarterly basis. On July 7, 1998, pursuant to Chapter 94, Statutes of 1998, the
State paid PERS $332.7 million for the accrued interest on the judgment and
interest on the unpaid accrued interest amount.

On June 24, 1998, plaintiffs in Howard Jarvis Taxpayers Association et al. v.
Kathleen Connell filed a complaint for certain declaratory and injunctive
relief challenging the authority of the State Controller to make payments from
the State Treasury in the absence of a state budget. On July 21, 1998, the
trial court issued a preliminary injunction prohibiting the State Controller
from paying moneys from the State Treasury for fiscal year 1998-99, with
certain limited exceptions, in the absence of a state budget. The preliminary
injunction, among other things, prohibited the State Controller from making any
payments pursuant to any continuing appropriation.

On July 22 and 27, 1998, various employee unions which had intervened in the
case appealed the trial court's preliminary injunction and asked the

C-9
<PAGE>

Court of Appeal to stay the preliminary injunction. On July 28, 1998, the Court
of Appeal granted the unions' requests and stayed the preliminary injunction
pending the Court of Appeal's decision on the merits of the appeal. On August
5, 1998, the Court of Appeal denied the plaintiffs' request to reconsider the
stay. Also on July 22, 1998, the State Controller asked the California Supreme
Court to immediately stay the trial court's preliminary injunction and to
overrule the order granting the preliminary injunction on the merits. On July
29, 1998, the Supreme Court transferred the State Controller's request to the
Court of Appeal. The matters are now pending before the Court of Appeal.

California Taxes--

In the opinion of Messrs. Brown & Wood LLP, special California counsel on
California tax matters, under existing law:

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

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

Maryland Trust

Risk Factors--The Public indebtedness of the State of Maryland (the "State")
and its instrumentalities is divided into three general types. The State issues
general obligation bonds for capital improvements and for various State
projects to the payment of which the State ad valorem property tax is
exclusively pledged. In addition, the Maryland Department of Transportation
issues for transportation purposes its limited, special obligation bonds
payable primarily from specific, fixed-rate excise taxes and other revenues
related mainly to highway use. Certain authorities issue obligations payable
solely from specific non-tax, enterprise fund revenues and for which the State
has no liability and has given no moral obligation assurance.

General obligation bonds of the State are authorized and issued primarily to
provide funds for State-owned capital improvements, including institutions of
higher learning, and the construction of locally owned public schools. Bonds
have also been issued for local government improvements, including grants and
loans for water quality improvement projects and correctional facilities, to
provide funds for repayable loans or outright grants to private, non-profit
cultural or educational institutions, and to fund certain loan and grant
programs.

The Maryland Constitution prohibits the contracting of State debt unless it
is authorized by a law levying an annual tax or taxes sufficient to pay the
debt service within 15 years and prohibiting the repeal of the tax or taxes or
their use for another purpose until the debt is paid. As a uniform practice,
each separate enabling act which authorizes the issuance of general obligation
bonds for a given object or purpose has specifically levied and directed the
collection of an ad valorem property tax on all taxable property in the State.
The Board of Public Works is directed by law to fix by May 1 of each year the
precise rate of such tax necessary to produce revenue sufficient for debt
services requirements of the next fiscal year, which begins July 1. However,
the taxes levied need not be collected if or to the extent that funds
sufficient for debt services requirements in the next fiscal year have been
appropriated in the annual State budget. Accordingly, the Board in annually
fixing the rate of
C-10
<PAGE>

property tax after the end of the regular legislative session in April, takes
account of appropriations of general funds for debt service.

In the opinion of counsel, the courts of Maryland have jurisdiction to
entertain proceeds and power to grant mandatory injunctive relief to (i)
require the Governor to include in the annual budget a sufficient appropriation
to pay all general obligation bond debt service for the ensuing fiscal year;
(ii) prohibit the General Assembly from taking action to reduce any such
appropriation below the level required for that debt service; (iii) require the
Board of Public Works to fix and collect a tax on all property in the State
subject to assessment for State tax purposes at a rate and in an amount
sufficient to make such payments to the extent that adequate funds are not
provided in the annual budget; and (iv) provide such other relief as might be
necessary to enforce the collection of such taxes and payment of the proceeds
of the tax collection to the holders of general obligation bonds, pari passu,
subject to the inherent constitutional limitations referred to below.

It is also the opinion of counsel that, while the mandatory injunctive
remedies would be available and while the general obligation bonds of the State
are entitled to constitutional protection against the impairment of the
obligation of contracts, such constitutional protection and the enforcement of
such remedies would not be absolute. Enforcement of a claim for payment of the
principal of or interest on the bonds would be subject to the provisions of any
statutes that may be constitutionally enacted by the United States Congress or
the Maryland General Assembly extending the time for payment or imposing other
constraints upon enforcement.

There is no general debt limit imposed by the Maryland Constitution or public
general laws, but a special committee created by statute annually submits to
the Governor an estimate of the maximum amount of new general obligation debt
that prudently may be authorized. Although the committee's responsibilities are
advisory only, the Governor is required to give due consideration to the
committee's findings in preparing a preliminary allocation of new general debt
authorization for the next ensuing fiscal year.

Consolidated Transportation Bonds are limited obligations issued by the
Maryland Department of Transportation, the principal of which must be paid
within 15 years from the date of issue, for highway, port, transit, rail or
aviation facilities or any combination of such facilities. Debt service on
Consolidated Transportation Bonds is payable from those portions of the excise
tax on each gallon of motor vehicle fuel and the motor vehicle titling tax, all
mandatory motor vehicle registration fees, monitor carrier fees, and the
corporate income tax as are credited to the Maryland Department of
Transportation, plus all departmental operating revenues and receipts. Holders
of such bonds are not entitled to look to other sources for payment.

The Maryland Department of Transportation also issues its bonds to provide
financing of local road construction and various other county transportation
projects and facilities. Debt service on these bonds is payable from the
subdivisions' share of highway user revenues held to their credit in a special
State fund. On November 9, 1994, the Maryland Transportation Authority issued
$162.6 million of special obligation revenue bonds to fund projects at the
Baltimore/Washington International Airport secured by revenues from the
passenger facility charges received by the Maryland Aviation Administration and
from the general account balance of the Transportation Authority. As of June
30, 1997, $388.7 million of the Transportation Authority's revenue bonds were
outstanding.

The Maryland Transportation Authority operates certain highway, bridge and
tunnel toll facilities in the State. The tolls and other revenues received from
these facilities are pledged as security for revenue bonds of the Authority
issued under and secured by a trust agreement between the Authority and a
corporate trustee.

Certain other instrumentalities of the State government are authorized to
borrow money under

C-11
<PAGE>

legislation which expressly provides that the loan obligations shall not be
deemed to constitute a debt or a pledge of the faith and credit of the State.
The Community Development Administration of the Department of Housing and
Community development, the Board of Trustees of St. Mary's College of Maryland,
the Maryland Environmental Service, the Board of Regents of the University of
Maryland System, the Board of Regents of Morgan State University, and the
Maryland Food Center Authority have issued and have outstanding bonds of this
type. The principal of and interest on bonds issued by these bodies are payable
solely from various sources, principally fees generated from use of the
facilities or enterprises financed by the bonds.

Under a Comprehensive Plan of Financing, as amended, of the Maryland Stadium
Authority, the Authority is authorized to finance the acquisition and
construction of sports facilities at a site within the City of Baltimore.
Currently, the Stadium Authority operates Oriole Park at Camden Yards which
opened in 1992. The Authority's financings are lease-backed revenue
obligations, payment of which is secured by, among other things, an assignment
of revenues to be received under a lease of the sports facilities from the
Authority to the State of Maryland; rental payments due from the State under
that lease will be subject to annual appropriation by the Maryland General
Assembly.

In October 1995, the Stadium Authority and the Baltimore Ravens (formally
known as the Cleveland Browns) executed a Memorandum of Agreement which commits
the Ravens to occupy a to be constructed football stadium in Baltimore City.
The Agreement was approved by the Board of Public Works and constitutes a
"long-term lease with a National Football League team" as required by statute
for the issuance of Stadium Authority bonds. The Stadium Authority sold $87.565
million in lease-backed revenue bonds on May 1, 1996. The proceeds from the
bonds, along with cash available from State lottery proceeds, investment
earnings, and other sources will be used to pay project design and construction
expenses of approximately $200 million. The bonds are solely secured by an
assignment of revenues received under a lease of the project from the Stadium
Authority to the State.

The Stadium Authority has also been assigned responsibility for constructing
an expansion of the Convention Centers in Baltimore City and Ocean City and
construction of a conference center in Montgomery County. The Baltimore
Convention Center expansion is expected to cost $163 million and is being
financed through a combination of funding from Baltimore City, Stadium
Authority revenue bonds, and State general obligation bonds. The Ocean City
Convention Center expansion is expected to cost $35 million and is being
financed through a combination of funding from Ocean City and the Stadium
Authority. The Montgomery County Conference Center is expected to cost $27.5
million and is being financed through a combination of funding from Montgomery
County and the Stadium Authority.

The Water Quality Revolving Loan Fund is administered by the Water Quality
Financing Administration in the Department of the Environment. The Fund may be
used to provide loans, subsidies and other forms of financial assistance to
local government units for wastewater treatment projects as contemplated by the
1987 amendments to the federal Water Pollution Control Act. The Administration
is authorized to issue bonds secured by revenues of the Fund, including loan
repayments, federal capitalization grants, and matching State grants.

The University of Maryland System, Morgan State University, and St. Mary's
College of Maryland are authorized to issue revenue bonds for the purpose of
financing academic and auxiliary facilities. Auxiliary facilities are any
facilities that furnish a service to students, faculty, or staff, and that
generate income. Auxiliary facilities include housing, eating, recreational,
campus, infirmary, parking, athletic, student union or activity, research
laboratory, testing and any related facilities.

Although the State has authority to make short-term borrowings in
anticipation of taxes and other

C-12
<PAGE>

receipts up to a maximum of $100 million, in the past it has not issued short-
term borrowings. However, the State has issued certain obligations in the
nature of bond anticipation notes for the purpose of assisting several savings
and loan associations in qualifying for Federal insurance and in connection
with the assumption by a bank of the deposit liabilities of an insolvent
savings and loan association.

The State has financed the construction and acquisition of various facilities
through conditional purchase, sale-leaseback, and similar transactions. All of
the lease payments under these arrangements are subject to annual appropriation
by the Maryland General Assembly. In the event that appropriations are not
made, the State may not be held contractually liable for the payments.

Local Subdivision Debt. The counties and incorporated municipalities in
Maryland issue general obligation debt for general governmental purposes. The
general obligation debt of the counties and incorporated municipalities is
generally supported by ad valorem taxes on real estate, tangible personal
property and intangible personal property subject to taxation. The issuer
typically pledges its full faith and credit and unlimited taxing power to the
prompt payment of the maturing principal and interest on the general obligation
debt and to the levy and collection of the ad valorem taxes as and when such
taxes become necessary in order to provide sufficient funds to meet the debt
service requirements. The amount of debt which may be authorized may in some
cases be limited by the requirements that it not exceed a stated percentage of
the assessable base upon which taxes are levied.

In the opinion of counsel, the issuer may be sued in the event that it fails
to perform its obligations under the general obligation debt to the holders of
the debt, and any judgments resulting from such suits would be enforceable
against the issuer. Nevertheless, a holder of the debt who has obtained any
such judgment may be required to seek additional relief to compel the issuer to
levy and collect such taxes as may be necessary to provide the Funds from which
a judgment may be paid. Although there is no Maryland law on this point, it is
the opinion of counsel that the appropriate courts of Maryland have
jurisdiction to entertain proceedings and power to grant additional relief,
such as a mandatory injunction, if necessary, to enforce the levy and
collection of such taxes and payment of the proceeds of the collection of the
taxes to the holders of general obligation debt, pari passu subject to the same
constitutional limitations on enforcement, as described above, as apply to the
enforcement of judgments against the State.

Local subdivisions, including counties and municipal corporations, are also
authorized by law to issue special and limited obligation debt for certain
purposes other than general governmental purposes. The source of payment of
that debt is limited to certain revenues of the issuer derived from commercial
activities operated by the issuer, payment made with respect to certain
facilities or loans and any funds pledged for the benefit of the holders of the
debt. That special and limited obligation debt does not constitute a debt of
the State, the issuer or any other political subdivision of either within the
meaning of any constitutional or statutory limitation. Neither the State nor
the issuer or any other political subdivision of either is obligated to pay the
debt or the interest on the debt except from the revenues of the issuer
specifically pledged to the payment of the debt. Neither the faith and credit
nor the taxing power of the State, the issuer or any other political
subdivision of either is pledged to the payment of the debt. The issuance of
the debt is not directly or indirectly or contingently an obligation, moral or
other, of the State, the issuer or any other political subdivision of either to
levy any tax for its payment.

Special Authority Debt. The State and local governments have created several
special authorities with the power to issue debt on behalf of the State or
local government for specific purposes, such as providing facilities for non-
profit health care and

C-13
<PAGE>

higher educational institutions, facilities for the disposal of solid waste,
funds to finance single family and low-to-moderate income housing, and similar
purposes. The Maryland Health and Higher Educational Facilities Authority, the
Northeast Maryland Waste Disposal Authority, the Housing Opportunities
Commission of Montgomery County, and the Housing Authority of Prince George's
County are some of the special authorities which have issued and have
outstanding debt of this type.

The debts of the authorities issuing debt on behalf of the State and the
local governments are limited obligations of the authorities payable solely
from and secured by a pledge of the revenues derived from the facilities or
loans financed with the proceeds of the debt and from any other funds and
receipts pledged under an indenture with a corporate trustee. The debt does not
constitute a debt, liability or pledge of the faith and credit of the State or
of any political subdivision or of the authorities. Neither the State nor any
political subdivision thereof nor the authorities shall be obligated to pay the
debt or the interest on the debt except from such revenues, funds and receipts.
Neither the faith and credit nor the taxing power of the State or of any
political subdivision of the State or the authorities is pledged to the payment
of the principal of or the interest on such debt. The issuance of the debt is
not directly or indirectly an obligation, moral or other, of the State or of
any political subdivision of the State or of the authority to levy or to pledge
any form of taxation whatsoever, or to make any appropriation, for their
payment. The authorities have no taxing power.

Maryland Taxes --

In the opinion of Messrs. Saul, Ewing, Remick & Saul LLP, special Maryland
counsel of Maryland tax matters, under applicable existing Maryland State and
local tax law:

The Maryland Trust will not be treated as an association taxable as a
corporation, and the income of the Maryland Trust will be treated as the
income of the Holders. The Maryland Trust is not a "financial institution"
subject to the Maryland Franchise Tax measure by net earnings. The Maryland
Trust is not subject to Maryland property taxes imposed on the intangible
personal property of certain corporations.

Except as described below in the case of interest paid on private
activity bonds constituting a tax preference for Federal income tax
purposes, a Holder will not be required to include such Holder's pro-rata
share of the earnings of, or distributions from, the Maryland Trust in such
Holder's Maryland taxable income to the extent that such earnings or
distributions represent interest excludable from gross income for Federal
income tax purposes received by the Maryland Trust on obligations of the
State of Maryland, the Government of Puerto Rico, or the Government of Guam
and their respective political subdivisions and authorities. Interest on
Bonds is not subject to the Maryland Franchise Tax imposed on "financial
institutions" and measured by net earnings.

In the case of taxpayers who are individuals, Maryland presently imposes
an income tax on items of tax preference with reference to such items as
defined in the Internal Revenue Code, as amended, for purposes of
calculating the Federal alternative minimum tax. Interest paid on certain
private activity bonds is a preference item for purposes of calculating the
Federal alternative minimum tax. Accordingly, if the Maryland Trust holds
such bonds, 50% of the interest on such bonds in excess of a threshold
amount is taxable by Maryland.

A Holder will recognize taxable gain or loss, except in the case of an
individual Holder who is not a Maryland resident, when the Holder disposes
of all or part of such Holder's pro rata portion of the Bonds in the
Maryland Trust. A Holder will be considered to have

C-14
<PAGE>

disposed of all or part of such Holder's pro rata portion of each Bond when
the Holder sells or redeems all or some of such Holder's Units. A Holder
will also be considered to have disposed of all or part of such Holder's
pro rata portion of a Bond when all or part of the Bond is disposed of by
the Maryland Trust or is redeemed or paid at maturity. Gains included in
the gross income of Holders for federal income tax purposes is, however,
subtracted from income for Maryland income tax purposes to the extent that
the gain is derived from the disposition of Bonds issued by the State of
Maryland and its political subdivisions. Profits realized on the sale or
exchange of Bonds are not subject to the Maryland Franchise Tax imposed on
"financial institutions" and measured by net earnings.

Units of the Maryland Trust will be subject to Maryland inheritance and
estate tax only if held by Maryland residents.

Neither the Bonds nor the Units will be subject to Maryland personal
property tax.

The sales of Units in Maryland or the holding of Units in Maryland will
not be subject to Maryland Sales or Use Tax.

New York Trust

Risk Factors--The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
connection with the issuance of New York State and New York City municipal
bonds. The Sponsor has not independently verified this information.

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

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

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

New York City. The City, with a population of approximately 7.4 million, is
an international center of business and culture. Its non-manufacturing economy
is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total employment
earnings. Additionally, the City is the nation's leading tourist destination.
The City's manufacturing activity is conducted primarily in apparel and
printing.

C-15
<PAGE>

For each of the 1981 through 1998 fiscal years, the City had an operating
surplus, before discretionary transfers, and achieved balanced operating
results as reported in accordance with then applicable generally accepted
accounting principles ("GAAP"), after discretionary transfers. The City has
been required to close substantial gaps between forecast revenues and forecast
expenditures in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results as
required by State law without tax or other revenue increases or reductions in
City services or entitlement programs, which could adversely affect the City's
economic base.

As required by law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections and outlines proposed gap-
closing programs for years with projected budget gaps. The City's current
financial plan projects a surplus in the 1999 and 2000 fiscal years, before
discretionary transfers, and budget gaps for each of the 2001, 2002 and 2003
fiscal years. This pattern of current year surplus operating results and
projected subsequent year budget gaps has been consistent through the entire
period since 1982, during which the City has achieved surplus operating
results, before discretionary transfers, for each fiscal year.

The City depends on aid from the State both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently
projected; that State budgets will be adopted by the April 1 statutory
deadline, or interim appropriations enacted; or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures.
In addition, the Federal budget negotiation process could result in a reduction
in or a delay in the receipt of Federal grants which could have additional
adverse effects on the City's cash flow or revenues.

The Mayor is responsible for preparing the City's financial plan, including
the City's current financial plan for the 2000 through 2003 fiscal years (the
"2000-2003 Financial Plan" or "Financial Plan"). The City's projections set
forth in the Financial Plan are based on various assumptions and contingencies
which are uncertain and which may not materialize. Such assumptions and
contingencies include the condition of the regional and local economies, the
provision of State and Federal aid and the impact on City revenues and
expenditures of any future Federal or State policies affecting the City.

Implementation of the Financial Plan is dependent upon the City's ability to
market its securities successfully. The City's financing program for fiscal
years 1999 through 2003 contemplates the issuance of $10.091 billion of general
obligation bonds and $5.340 billion of bonds to be issued by the New York City
Transitional Finance Authority (the "Finance Authority") to finance City
capital projects. In addition, it is currently expected that approximately $2.8
billion of bonds will be issued by the Tobacco Settlement Asset Securitization
Corporation ("TSASC") and paid from revenues received pursuant to a settlement
of litigation with the leading cigarette companies. The Finance Authority and
TSASC were created as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on
the amount of debt the City is authorized to incur. If TSASC is not able to
issue bonds in the amount expected, the City will need to find another source
of financing or substantially curtail or halt its capital program. In addition,
the City issues revenue and tax anticipation notes to finance its seasonal
working capital requirements. The success of projected public sales of City
bonds and notes, New York City Municipal Water Finance Authority ("Water
Authority") bonds and Finance Authority bonds will be subject to prevailing
market conditions. The City's planned capital and operating expenditures are
dependent upon the sale of its general obligation bonds and notes, and the
Water Authority, Finance Authority and TSASC bonds. Future developments
concerning the City and public discussion of such

C-16
<PAGE>

developments, as well as prevailing market conditions, may affect the market
for outstanding City general obligation bonds and notes.

For the 1998 fiscal year, the City had an operating surplus, before
discretionary and other transfers, and achieved balanced operating results,
after discretionary and other transfers, in accordance with GAAP. The 1998
fiscal year is the eighteenth year that the City has achieved an operating
surplus, before discretionary and other transfers, and balanced operating
results, after discretionary and other transfers.

The most recent quarterly modification to the City's financial plan for the
1999 fiscal year, submitted to the New York State Financial Control Board (the
"Control Board") on June 14, 1999 (the "1999 Modification"), projects a
balanced budget in accordance with GAAP for the 1999 fiscal year.

On June 14, 1999, the City released the Financial Plan for the 2000 through
2003 fiscal years, which relates to the City and certain entities which receive
funds from the City. The Financial Plan reflects changes as a result of the
City's expense and capital budgets for fiscal year 2000, which were adopted on
June 7, 1999. The Financial Plan projects revenues and expenditures for the
2000 fiscal year balanced in accordance with GAAP and projects gaps of $1.8
billion, $1.9 billion and $1.8 billion for fiscal years 2001 through 2003,
respectively.

Changes since adoption of the City's Expense Budget for the 1999 fiscal year
in June 1998, prior to the financial plan submitted to the Control Board on
June 26, 1998, include: (i) an increase in projected tax revenues of $976
million, $813 million, $558 million, $174 million and $1.4 billion in fiscal
years 1999 through 2003, respectively; (ii) $300 million, $250 million, $300
million and $300 million of projected resources in fiscal years 2000 through
2003, respectively, from the receipt by the City of funds from the settlement
of litigation with the leading cigarette companies; (iii) a reduction in the
assumed collection of $350 million of projected rent payments for the City's
airports to $210 million and a delay in the receipt of such payments from
fiscal year 2000 to fiscal year 2001; (iv) anticipated proceeds from the
proposed sale of the Coliseum in fiscal year 2001 totaling $345 million; and
(v) net increases in spending of $638 million, $691 million, $679 million and
$1.0 billion in fiscal years 2000 through 2003, including spending for
Medicaid, education initiatives, anti-smoking programs, employee fringe benefit
costs, and other agency programs. The 1999 Modification and the 2000-2003
Financial Plan includes a proposed discretionary transfer in the 1999 fiscal
year of $2.6 billion to pay debt service due in fiscal year 2000, for budget
stabilization purposes, a proposed discretionary transfer in fiscal year 2000
to pay debt service due in fiscal year 2001 totaling $429 million, and a
proposed discretionary transfer in fiscal year 2001 to pay debt service due in
fiscal year 2002 totaling $345 million.

In addition, the Financial Plan sets forth gap-closing actions to eliminate a
previously projected gap for the 2000 fiscal year and to reduce projected gaps
for fiscal years 2001 through 2003. The gap-closing actions for the 2000
through 2003 fiscal years include: (i) additional agency actions totaling $605
million, $486 million, $409 million and $397 million for fiscal years 2000
through 2003, respectively; (ii) additional Federal aid of $75 million in each
of fiscal years 2000 through 2003, which include the proposed restoration of
$25 million of Federal revenue sharing and $50 million of increased Federal
Medicaid aid; and (iii) additional State actions totaling approximately $125
million in each of fiscal years 2000 through 2003, including Medicaid cost
containment initiatives proposed in the Governor's Executive Budget for State
fiscal year 1999-2000, which would reduce expenditures by the City by
approximately $50 million in each of fiscal years 2000 through 2003, and
proposals by the City that the State enact tort reform legislation, increase
revenue sharing payments and expand State funding for low income uninsured
disabled children. The Financial Plan also

C-17
<PAGE>

reflects a tax reduction program, which includes the elimination of the City's
non-residents earning tax, the proposed extension of current tax reductions for
owners of cooperative and condominium apartments and a proposed income tax
credit for low income wage earners.

The Financial Plan assumes: (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999, and which is projected to provide
revenue of $572 million, $585 million, $600 million and $638 million in the
2000 through 2003 fiscal years, respectively; (ii) collection of projected rent
payments for the City's airports, totaling $365 million, $185 million and $155
million in the 2001 through 2003 fiscal years, respectively, a substantial
portion of which may depend on the successful completion of negotiations with
The Port Authority of New York and New Jersey or the enforcement of the City's
rights under the existing leases through pending legal action; (iii) State and
Federal approval of the State and Federal gap-closing actions proposed by the
City in the Financial Plan; and (iv) receipt of the tobacco settlement funds
providing revenues or expenditure offsets in annual amounts ranging between
$250 million and $300 million. The Financial Plan provides no additional wage
increases for City employees after their contracts expire in fiscal years 2000
and 2001. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and political factors which
could have a material effect on the City.

On June 7, 1999, the City Council adopted a budget for fiscal year 2000. The
adopted budget includes lower estimated debt service expenditures in fiscal
year 2000 resulting from a $456 million increase, from $2.1 billion to $2.6
billion, in the proposed discretionary transfer in the 1999 fiscal year to pay
debt service due in fiscal year 2000. The $456 million increase in the
discretionary transfer reflects increased tax revenues and decreased
expenditures in the 1999 fiscal year. The adopted budget also includes $220
million of spending initiatives proposed by the City Council, other increased
spending and the net cost of revised tax reduction proposals, which reflect the
repeal of all of the City non-resident earnings tax and the elimination of
certain of the previously proposed tax reduction initiatives.

On July 16, 1998, Standard & Poor's revised its rating of City bonds upward
from BBB+ to A-. Moody's rating of City bonds was revised in February 1998 to
A3 from Baa1. On March 8, 1999, Fitch revised its rating of City bonds upward
to A. Moody's, Standard & Poor's and Fitch currently rate the City's
outstanding general obligations bonds A3, A- and A, respectively.

New York State and its Authorities. The State ended the 1998-1999 fiscal year
in balance on a cash basis for the 1998-1999 fiscal year, with a reported
closing balance in the General Fund of $892 million, after reserving a
projected $1.8 billion surplus for use in future years. The Governor's
Executive Budget projects balance on a cash basis for the 1999-2000 fiscal
year, with a closing balance in the General Fund of $2.5 billion, including a
projected reserve of $1.79 billion for use in fiscal years 2000-2001 and 2001-
2002. Subsequently, as a result of revisions to national and State economic
forecasts, the State Division of the Budget has revised its estimate of
receipts for the 1999-2000 fiscal year to include an additional $150 million in
receipts. The Legislature and the State Comptroller will review the Governor's
Executive Budget and are expected to comment on it. The State Assembly and the
State Senate have each adopted budget resolutions which provide an outline of
intended spending and revenue changes to the 1999-2000 Executive Budget which,
the Division of the Budget believes, would, if enacted, increase the size of
the State's future budget gaps. There can be no assurance that the Legislature
will enact the Executive Budget into law, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth in the Executive Budget. Depending on the amount of

C-18
<PAGE>

State aid provided to localities, and whether the Medicaid cost containment
initiatives proposed in the Executive Budget are approved by the State, the
City might be required to make substantial additional changes in its Financial
Plan. The State budget for the State's 1999-2000 fiscal year was not adopted
by the statutory deadline of April 1, 1999. However, legislation making
interim appropriations has been enacted. A prolonged delay in the adoption of
the State's budget beyond the statutory April 1 deadline without continuing
interim appropriations could delay the projected receipt by the City of State
aid.

The State Financial Plan for the 1999-2000 fiscal year, which reflects the
1999-2000 Executive Budget, contains projections of a potential imbalance in
the 2000-2001 fiscal year of $1.14 billion and in the 2001-2002 fiscal year of
$2.07 billion, assuming implementation of the 1999-2000 Executive Budget
recommendations, the application of the $1.79 billion reserve fund and
implementation of $500 million of unspecified efficiency initiatives and other
actions in each of the 2000-2001 and 2001-2002 fiscal years, respectively. The
Executive Budget identifies various risks, including either a financial market
or broader economic correction during the period, which could adversely affect
these projections.

Standard & Poor's rates the State's general obligation bonds A, and Moody's
rates the State's general obligation bonds A2. On August 28, 1997, Standard &
Poor's revised its rating on the State's general obligation bonds from A- to
A.

Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally
involve State programs and miscellaneous tort, real property, and contract
claims. While the ultimate outcome and fiscal impact, if any, on the State of
those proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon
the State's ability to carry out the 1999 Modification and 2000-2003 Financial
Plan. The City has estimated that its potential future liability on account of
outstanding claims against it as of June 30, 1998 amounted to approximately
$3.5 billion.

New York Taxes--

In the opinion of bond counsel delivered on the dates the Bonds were issued
(or in opinions to be delivered, in the case of when issued Bonds) the
interest on the Bonds is exempt from New York State and City personal income
taxes, except where such interest is subject to Federal income taxes, as is
described in "Taxes".

In the opinion of Battle Fowler LLP, special counsel for the Sponsor, under
existing New York law:

Under the income tax laws of the State and City of New York, the Trust is
not an association taxable as a corporation and income received by the
Trust will be treated as the income of the Holders in the same manner as
for Federal income tax purposes. Accordingly, each Holder will be
considered to have received the interest on its pro rata portion of each
Bond when interest on the Bond is received by the Trust (or on earlier
accrual, depending on the Holder's method of accounting and depending on
the existence of any original issue discount). A noncorporate Holder who is
a New York State (and City) resident will be subject to New York State (and
City) personal income taxes on any gain or market discount income
recognized when it disposes of all or part of its 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 its tax basis for its 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

C-19
<PAGE>

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 franchise
taxes on corporations or financial institutions.

North Carolina Trust

Risk Factors-- The Sponsor believes the information summarized below
describes some of the more significant developments relating to Securities of
(i) municipalities or other political subdivisions or instrumentalities of the
State of North Carolina (the "State") which rely, in whole or in part, on ad
valorem real property taxes and other general funds of such municipalities or
political subdivisions or (ii) the State of North Carolina, which are general
obligations of the State payable from appropriations from the State's General
Fund. The sources of such information include official reports from the
Department of the Treasurer, as well as other publicly available documents. The
Sponsor has not independently verified any of the information contained in such
official reports, but is not aware of any facts which would render such
information inaccurate.

State Economic Profile. North Carolina has six municipalities with
populations in excess of 100,000. Approximately sixty-seven percent of the
State's population live inside metropolitan areas. In July, 1998, the U.S.
Census Bureau estimated the State's population to be approximately 7,546,000,
ranking North Carolina eleventh in population in the nation.

For the seventh straight year, North Carolina economies grew in 1998, and the
pace of economic activity in North Carolina exceeded that for the nation. Gross
State Product, a measure of economic output in the State, rose by over 5% in
1998.

In 1998 the State's job market improved, with over 40,000 net new jobs added
to the labor force. One exception was the textile and apparel sector, where
11,000 jobs were lost in 1998.

As of April, 1999, nonagricultural wage and salary employment in North
Carolina accounted for approximately 3,834,900 jobs. The largest
nonagricultural segment of jobs was the approximately 964,400 persons employed
in the service industry, and the second largest nonagricultural segment of jobs
was the approximately 878,600 persons employed in trade. The United States
Department of Labor estimates that as of April, 1999, North Carolina ranked
tenth among the states in nonagricultural employment, eight in manufacturing
employment, eleventh in trade, and thirteenth in services.

The North Carolina Employment Security Commission estimated the State's
seasonally adjusted unemployment rate in May, 1999, to be 3.1% of the labor
force, as compared with a nationwide rate of 4.2%. During the period from 1990
to 1998, per capita income in North Carolina grew from $16,674 to $24,055, an
increase of approximately 44%.

Agricultural income (excluding farm forest products) in 1997 was $8,302
million. This places North Carolina seventh in the nation in agricultural
income. Tobacco production is the leading source of agricultural crop income in
the State, accounting for approximately 14.4% of agricultural income in 1997.
Livestock, dairy and poultry products account for approximately 56.5% of North
Carolina's agricultural income, and in 1997 North Carolina was sixth in the
nation in terms of livestock, dairy and poultry production.

State Financial Condition. The State's two principal operating accounts are
the General Fund and the Highway Fund. The principal sources of General Fund
tax revenues are individual and corporate income taxes and the sales and use
tax. The State Constitution limits the income tax to a rate of 10% of total net
income; the State actually imposed a maximum rate of 7.75% during the 1998
calendar year.

As of June 30, 1998, the fund balance of the General Fund on the modified
accrual basis was $1.67 billion, in comparison to balances of approximately
$901 million, $945 million, $1.42

C-20
<PAGE>

billion, and $1.7 billion at the end of 1994, 1995, 1996, and 1997,
respectively. Expenditures and other financing uses for general governmental
purposes totaled $22.9 billion in 1998, an increase of $1.6 billion. This
increase was directly related to the continued emphasis on education, health
and human services, and transportation, and the retiree tax judgments as a
result of the North Carolina Supreme Court ruling in the Bailey case.

Revenues and other financing sources for general governmental functions
amounted to $23.4 billion for the fiscal year ended June 30, 1998. Total tax
revenues increased by $1.1 billion in 1998. Income tax collections increased by
$800.2 million in 1998 to $7.1 billion, a 12.7% increase over 1997. Sales tax
collections grew by $138 million in 1998, a 4.4% increase over 1997. In 1998,
highway taxes increased by $89.9 million to $1.477 billion. Federal funds
revenues increased in 1998 by $125 million, an increase of 2.1% over 1997.

State Debt. As of June 30, 1998, approximately $1,867.5 million aggregate
principal amount of the State's general obligation bonds and $250 million of
its highway fund general obligation bonds were outstanding. The highway fund
bonds are payable from the Highway Fund.

In addition, 16 constituent institutions of the University of North Carolina
and eight agencies or public authorities of the State had approximately $11
billion principal amount of revenue bonds outstanding as of June 30, 1998.

Litigation. The court actions in which the State is a defendant generally
involve State programs and miscellaneous tax, tort, real property, and contract
claims. While the ultimate outcome and fiscal impact, if any, on the State of
those proceedings and claims are not currently predictable, adverse
determinations in certain of them might require the State to make significant
future expenditures or impair future revenue sources.

On May 8, 1998, the North Carolina Supreme Court in Bailey v. State ruled
that legislation providing for the taxation of retirement benefits paid to
State and local government employees was unconstitutional and that the State
was liable to make full refunds to retirees. A potential result of this
decision was to make the State liable to federal retirees in Patton v. State.
In June, 1998, representatives of the State and the various retirees involved
in the Bailey and Patton cases announced a settlement in the amount of $799
million. $400 million has been reserved by the General Assembly to pay the
first installment of the settlement in fiscal year 1998-99; the remaining $399
million will be paid during fiscal year 1999-2000.

On February 21, 1996, the U.S. Supreme Court declared North Carolina's
intangibles tax unconstitutional in Smith v. State. Subsequently, the State
made refunds of intangible taxes paid by all persons who had complied with the
provisions for obtaining refunds of unconstitutional taxes. On December 4,
1998, the Supreme Court ruled that North Carolina will have to pay refunds to
taxpayers who failed to comply with these provisions, and these refunds are
expected to total approximately $233 million plus interest of approximately
$100 million.

North Carolina Taxes

As of the date of this Prospectus, in the opinion of Messrs. Kilpatrick
Stockton LLP, special North Carolina counsel on North Carolina tax matters,
with respect to the North Carolina Trust, under then existing law applicable to
persons who are North Carolina residents:

The State of North Carolina imposes a tax upon the taxable income of
individuals, corporations, estates, and trusts. Nonresident individuals are
generally taxed only on income from North Carolina sources. Corporations
doing business within and without North Carolina are entitled to allocate
and apportion their income if they have income from business activity which
is taxable in another state. The mere ownership of Units will not subject a
nonresident Unit holder to the tax jurisdiction of North Carolina.

C-21
<PAGE>

Counsel has been advised that for federal income tax purposes the North
Carolina Trust will be a grantor trust and not an association taxable as a
corporation. Based upon this assumption, counsel is of the opinion that the
North Carolina Trust will be treated as a grantor trust for North Carolina
income tax purposes and not as an association taxable as a corporation.
Each participant in the North Carolina Trust must report his share of the
taxable income of the North Carolina Trust.

The calculation of North Carolina taxable income of an individual,
corporation, estate or trust begins with federal taxable income. Certain
modifications are specified, but no such modification requires the addition
of interest on the obligations of the State of North Carolina, its
political subdivisions, or nonprofit educational institutions organized or
chartered under the laws of North Carolina.

As a general rule, gain (or loss) from the sale of obligations held by
the North Carolina Trust (whether as a result of the sale of such
obligations by the North Carolina Trust or as a result of the sale of a
unit by a Unit holder) is includible (or deductible) in the calculation of
the Unit holder's North Carolina taxable income. Under the language of
certain enabling legislation such as the North Carolina Hospital
Authorities Act, the North Carolina Health Care Facilities Finance Act, the
North Carolina Housing Finance Agency Act, the act establishing the North
Carolina State Ports Authority, the North Carolina Joint Municipal Electric
Power and Energy Act, the act authorizing the organization of business
development corporations, the North Carolina Private Education Facilities
Finance Act, the North Carolina Agricultural Finance Act, and the act
establishing the North Carolina Solid Waste Management Loan Program,
profits made on the sale of obligations issued before July 1, 1995, by
authorities created thereunder are made expressly exempt from North
Carolina income taxation. The exemption of such profits from North Carolina
income taxation does not require a disallowance of any loss incurred on the
sale of such obligations in the calculation of North Carolina income taxes.
With respect to North Carolina obligations issued after June 30, 1995, the
treatment of gains from the sale or disposition of such obligations is the
same for federal and North Carolina income tax purposes.

For federal income tax purposes, interest on North Carolina obligations
that would otherwise be exempt from taxation may in certain circumstances
be taxable to the recipient. North Carolina law provides that the interest
on North Carolina obligations shall maintain its exemption from North
Carolina income taxation notwithstanding that such interest may be subject
to federal income taxation.

North Carolina imposes a tax on transfers which occur by reason of death
or by gift. Transfers of obligations of North Carolina, its political
subdivisions, agencies of such governmental units, or nonprofit educational
institutions organized or chartered under the laws of North Carolina are
not exempt from the North Carolina estate and gift taxes.

48 U.S.C. (S)745 provides that bonds issued by the Government of Puerto
Rico, or by its authority, shall be exempt from taxation by any State or by
any county, municipality, or other municipal subdivision of any State.
Accordingly, interest on any such obligations held by the North Carolina
Trust would be exempt from the North Carolina corporate and individual
income taxes. The North Carolina Department of Revenue takes the position
that gains from the sale or other disposition of such obligations are
subject to the North Carolina corporate and individual income taxes.

C-22
<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 1999 taxable year and state
income tax rates that were available on the date of the Prospectus. Because the
Federal rate brackets are subject to adjustment based on changes in the
Consumer Price Index, the taxable equivalent yields for subsequent years may be
lower than indicated. A table is computed on the theory that the taxpayer's
highest bracket tax rate is applicable to the entire amount of any increase or
decrease in taxable income (after allowance for any resulting change in state
income tax) resulting from a switch from taxable to tax-free securities or vice
versa. Variations between state and Federal allowable deductions and exemptions
are generally ignored. The state tax is thus computed by applying to the
Federal taxable income bracket amounts shown in the table the appropriate state
rate for those same dollar amounts. For example, a married couple living in the
State of California and filing a Joint Return with $53,000 in taxable income
for the 1999 tax year would need a taxable investment yielding 9.06% in order
to equal a tax-free return of 6.00%. Use the appropriate table to find your tax
bracket. Read across to determine the approximate taxable yield you would need
to equal a return free of Federal income tax and state income tax.

STATE OF CALIFORNIA
1999 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 - 10,032 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72%
$ 10,033 - 23,776 16.70 4.80 5.40 6.00 6.60 7.20 7.80
$ 23,777 - 37,522 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 37,523 - 42,350 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$ 42,351 - 52,090 32.32 5.91 6.65 7.39 8.13 8.87 9.60
$ 52,091 - 65,832 33.76 6.04 6.79 7.55 8.30 9.06 9.81
$ 65,833 - 104,050 34.70 6.13 6.89 7.66 8.42 9.19 9.95
$104,051 - 126,600 37.42 6.39 7.19 7.99 8.79 9.59 10.39
$126,601 - 158,550 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$158,551 - 283,150 42.93 7.01 7.89 8.76 9.64 10.51 11.39
Over $283,150 46.29 7.45 8.38 9.31 10.24 11.17 12.10
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 5,016 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72%
$ 5,017 - 11,888 16.70 4.80 5.40 6.00 6.60 7.20 7.80
$ 11,889 - 18,761 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 18,762 - 25,750 20.10 5.01 5.63 6.26 6.88 7.51 8.14
$ 25,751 - 26,045 32.32 5.91 6.65 7.39 8.13 8.87 9.60
$ 26,046 - 32,916 33.76 6.04 6.79 7.55 8.30 9.06 9.81
$ 32,917 - 62,450 34.70 6.13 6.89 7.66 8.42 9.19 9.95
$ 62,451 - 126,600 37.42 6.39 7.19 7.99 8.79 9.59 10.39
$126,601 - 130,250 38.26 6.48 7.29 8.10 8.91 9.72 10.53
$130,251 - 283,150 42.93 7.01 7.89 8.76 9.64 10.51 11.39
Over $283,150 46.29 7.45 8.38 9.31 10.24 11.17 12.10
</TABLE>
- --------
Note: This table reflects the following:
1 The above tax rates represent 1999 Federal income tax rates and 1998
California income tax rates. California has not yet published its 1999
personal income tax rates.
2 Taxable income, as reflected in the above table, equals Federal adjusted
gross income (AGI), less personal exemptions and itemized deductions
(including the deduction for state income tax). However, certain itemized
deductions are reduced by the lesser of (i) three percent of the amount
of the taxpayer's AGI over $126,600, 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. However, the effect of the 80 percent cap on overall itemized
deductions is not reflected on this table. Federal income tax rules also
provide that personal exemptions are phased out at a rate of two percent
for each $2,500 (or fraction thereof) of AGI in excess of $189,950 for
married taxpayers filing a joint tax return and $126,600 for single
taxpayers. The effect of this phase out is not reflected in the above
table.
3 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. The effect of this provision is not included
into the above table.
4 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
5 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.

C-23
<PAGE>

STATE OF MARYLAND
1999 Tax Year

<TABLE>
<CAPTION>
Approx. Combined
Federal, State TAX FREE YIELD
Taxable and Local 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
Income Bracket Tax Rate
TAXABLE EQUIVALENT YIELD
JOINT RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0-
1,000 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80%
$ 1,001-
2,000 17.55 4.85 5.46 6.06 6.67 7.28 7.88
$ 2,001-
3,000 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 3,001-
43,050 19.12 4.95 5.56 6.18 6.80 7.42 8.04
$ 43,051-
104,050 31.49 5.84 6.57 7.30 8.03 8.76 9.49
$104,051-
126,600 34.35 6.09 6.85 7.62 8.38 9.14 9.90
$126,601-
158,550 35.23 6.18 6.95 7.72 8.49 9.26 10.04
$158,551-
283,150 40.13 6.68 7.52 8.35 9.19 10.02 10.86
Over
$283,150 43.66 7.10 7.99 8.87 9.76 10.65 11.54
SINGLE RETURN
$ 0-
1,000 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80%
$ 1,001-
2,000 17.55 4.85 5.46 6.06 6.67 7.28 7.88
$ 2,001-
3,000 18.40 4.90 5.51 6.13 6.74 7.35 7.97
$ 3,001-
25,750 19.12 4.95 5.56 6.18 6.80 7.42 8.04
$ 25,751-
62,450 31.49 5.84 6.57 7.30 8.03 8.76 9.49
$ 62,451-
126,600 34.35 6.09 6.85 7.62 8.38 9.14 9.90
$126,601-
130,250 35.23 6.18 6.95 7.72 8.49 9.26 10.04
$130,251-
283,150 40.13 6.68 7.52 8.35 9.19 10.02 10.86
Over
$283,150 43.66 7.10 7.99 8.87 9.76 10.65 11.54
</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 $126,600, 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 effective Federal tax rates. Federal income tax rules also provide
that personal exemptions are phased out at a rate of two percent for each
$2,500 (or fraction thereof) of AGI in excess of $189,950 for married
taxpayers filing a joint tax return and $126,600 for single taxpayers.
The effect of the phase out of personal exemptions is not reflected in
the above table .
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. The effect of this provision is not incorporated
into the table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
4 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.

C-24
<PAGE>

STATE OF NEW YORK
1999 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>
$0-16,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$16,001-22,000 18.83 4.93 5.54 6.16 6.78 7.39 8.01
$22,001-26,000 19.46 4.97 5.59 6.21 6.83 7.45 8.07
$26,001-40,000 20.02 5.00 5.63 6.25 6.88 7.50 8.13
$40,001-43,050 20.82 5.05 5.68 6.31 6.95 7.58 8.21
$43,051-104,050 32.93 5.96 6.71 7.46 8.20 8.95 9.69
$104,051-126,600 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$126,601-158,550 36.59 6.31 7.10 7.89 8.67 9.46 10.25
$158,551-$283,150 41.39 6.82 7.68 8.53 9.38 10.24 11.09
Over $283,150 44.84 7.25 8.16 9.07 9.97 10.88 11.78
<CAPTION>
SINGLE RETURN
<S> <C> <C> <C> <C> <C> <C> <C>
$0-8,000 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97%
$8,001-11,000 18.83 4.93 5.54 6.16 6.78 7.39 8.01
$11,001-13,000 19.46 4.97 5.59 6.21 6.83 7.45 8.07
$13,001-20,000 20.02 5.00 5.63 6.25 6.88 7.50 8.13
$20,001-25,750 20.82 5.05 5.68 6.31 6.95 7.58 8.21
$25,751-62,450 32.93 5.96 6.71 7.46 8.20 8.95 9.69
$62,451-126,600 35.73 6.22 7.00 7.78 8.56 9.34 10.11
$126,601-130,250 36.59 6.31 7.10 7.89 8.67 9.46 10.25
$130,251-$283,150 41.39 6.82 7.68 8.53 9.38 10.24 11.09
Over $283,150 44.84 7.25 8.16 9.07 9.97 10.88 11.78
- -------------
</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 $126,600, 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 used 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 effective Federal tax rates. Federal income tax rules also provide
that personal exemptions are phased out at a rate of two percent for each
$2,500 (or fraction thereof) of AGI in excess of $189,950 for married
taxpayers filing a joint tax return and $126,600 for single taxpayers.
The effect of the phase out of personal exemptions is not reflected in
the above table.
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. This provision is not incorporated into the
table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
4 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.

C-25
<PAGE>

CITY OF NEW YORK
1999 Tax Year
<TABLE>
<CAPTION>
Approx. Combined
Federal, State & TAX EXEMPT YIELD
Taxable New York City 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-
16,000 20.70% 5.04% 5.67% 6.30% 6.94% 7.57% 8.20%
$ 16,001-
21,600 21.12 5.07 5.70 6.34 6.97 7.61 8.24
$ 21,601-
22,000 21.59 5.10 5.74 6.38 7.01 7.65 8.29
$ 22,001-
26,000 22.23 5.14 5.79 6.43 7.07 7.72 8.36
$ 26,001-
40,000 22.78 5.18 5.83 6.48 7.12 7.77 8.42
$ 40,001-
43,050 23.59 5.24 5.89 6.54 7.20 7.85 8.51
$ 43,051-
45,000 35.28 6.18 6.95 7.73 8.50 9.27 10.04
$ 45,001-
90,000 35.31 6.18 6.96 7.73 8.50 9.28 10.05
$ 90,001-
104,050 35.35 6.19 6.96 7.73 8.51 9.28 10.05
$104,051-
126,601 38.04 6.46 7.26 8.07 8.88 9.68 10.49
$126,601-
158,550 38.88 6.54 7.36 8.18 9.00 9.82 10.63
$158,551-
$283,150 43.50 7.08 7.96 8.85 9.73 10.62 11.50
Over
$283,150 46.83 7.52 8.46 9.40 10.34 11.28 12.23

<CAPTION>
SINGLE RETURN

<S> <C> <C> <C> <C> <C> <C> <C>
$ 0-
8,000 20.70% 5.04% 5.67% 6.30% 6.94% 7.57% 8.20%
$ 8,001-
11,000 21.12 5.07 5.70 6.34 6.97 7.61 8.24
$ 11,001-
12,000 22.27 5.15 5.79 6.43 7.08 7.72 8.36
$ 12,001-
13,000 22.23 5.14 5.79 6.43 7.07 7.72 8.36
$ 13,001-
20,000 22.78 5.18 5.83 6.48 7.12 7.77 8.42
$ 20,001-
25,000 23.59 5.24 5.89 6.54 7.20 7.85 8.51
$ 25,001-
25,750 23.63 5.24 5.89 6.55 7.20 7.86 8.51
$ 25,751-
50,000 35.31 6.18 6.96 7.73 8.50 9.28 10.05
$ 50,001-
62,450 35.35 6.19 6.96 7.73 8.51 9.28 10.05
$ 62,451-
126,600 38.04 6.46 7.26 8.07 8.88 9.68 10.49
$126,601-
130,250 38.88 6.54 7.36 8.18 9.00 9.82 10.63
$130,251-
$283,150 43.50 7.08 7.96 8.85 9.73 10.62 11.50
Over
$283,150 46.83 7.52 8.46 9.40 10.34 11.28 12.23
</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 $126,600, 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 effective Federal tax rates. Federal income tax rules also provide
that personal exemptions are phased out at a rate of two percent for each
$2,500 (or fraction thereof) of AIG in excess of $189,950 for married
taxpayers filing a joint tax return and $126,600 for single taxpayers.
The effect of the phase out of personal exemptions is not reflected in
the above table.
2 Interest earned on municipal obligations may be subject to the federal
alternative minimum tax. The effect of this provision is not incorporated
into the table.
3 The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax rates
used are the highest rates applicable to the income levels indicated
within each bracket.
4 Interest earned on all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.

C-26
<PAGE>

STATE OF NORTH CAROLINA
1999 Tax Year
<TABLE>
<CAPTION>
Approx. Combined TAX-FREE YIELD
Federal Federal, State 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
Taxable Income Tax Rate
TAXABLE EQUIVALENT YIELD

JOINT RETURN

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
21,250 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14%
$ 21,251-
43,050 20.95 5.06 5.69 6.33 6.96 7.59 8.22
$ 43,051-
100,000 33.04 5.97 6.72 7.47 8.21 8.96 9.71
$100,001-
104,050 33.58 6.02 6.78 7.53 8.28 9.03 9.79
$104,051-
126,600 36.35 6.28 7.07 7.86 8.64 9.43 10.21
$126,601-
158,550 37.21 6.37 7.17 7.96 8.76 9.55 10.35
$158,551-
283,150 41.96 6.89 7.75 8.61 9.48 10.34 11.20
Over
$283,150 45.38 7.32 8.24 9.15 10.07 10.98 11.90

<CAPTION>
SINGLE RETURN

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-
12,750 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14%
$ 12,751-
25,750 20.95 5.06 5.69 6.33 6.96 7.59 8.22
$ 25,751-
60,000 33.04 5.97 6.72 7.47 8.21 8.96 9.71
$ 60,001-
62,450 33.58 6.02 6.78 7.53 8.28 9.03 9.79
$ 62,451-
126,600 36.35 6.28 7.07 7.86 8.64 9.43 10.21
$126,601-
130,250 37.21 6.37 7.17 7.96 8.76 9.55 10.35
$130,251-
283,150 41.96 6.89 7.75 8.61 9.48 10.34 11.20
Over
$283,150 45.38 7.32 8.24 9.15 10.07 10.98 11.90
</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 $126,600, or (ii) 80 percent of the amount of
such itemized deductions otherwise allowable. The effect of the three
percent phase out on all itemized deductions and not just those
deductions subject to the phase out is reflected above in the combined
Federal and state tax rates through the use of higher effective Federal
tax rates. In addition, the effect of the 80 percent cap on overall
itemized deductions is not reflected on this table. Federal income tax
rules also provide that personal exemptions are phased out at a rate of
two percent for each $2,500 (or fraction thereof) of AGI in excess of
$189,950 for married taxpayers filing a joint tax return and $126,600 for
single taxpayers. The effect of the 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 all municipal obligations may cause certain investors
to be subject to tax on a portion of their Social Security and/or
railroad retirement benefits. The effect of this provision is not
included in the above table.

C-27
<PAGE>

TAX EXEMPT SECURITIES TRUST
-------------------------------------------------------------

10,000 Units Dated July 16, 1999

PROSPECTUS

This Prospectus does not contain all of the information with respect to the
Trust set forth in its registration statements filed with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of 1933 (file
nos. 333-80727, 333-74125, 333-74131 and 333-82761) and the Investment Company
Act of 1940 (file no. 811-2560), and to which reference is hereby made. Copies
may be reviewed at the Commission or on the internet, or obtained from the
Commission at prescribed rates by:
. calling: 1-800-SEC-0330
. visiting the SEC internet address: http://www.sec.gov.
. writing: Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549-6009
- --------------------------------------------------------------------------------

Index Sponsor:

<TABLE> Salomon Smith Barney Inc.
<S> <C> 388 Greenwich Street
Investment Summary A-2 23rd Floor
Summary of Essential Information A-8 New York, New York 10013
Portfolio Summary as of Date of (212) 816-4000
Deposit A-11
Independent Auditors' Report A-14
Statement of Financial Condition A-15
Portfolio A-17
Notes to Portfolios of Securities A-24
Tax Exempt Securities Trust B-1
Risk Factors B-2
Taxes B-9
Expenses and Charges B-13
Public Offering B-14
Rights of Holders B-17
Sponsor B-21
Trustee B-22
Evaluator B-22
Amendment and Termination of the
Trust Agreement B-23
Miscellaneous B-23
Bond Ratings B-24
Federal Tax Free vs. Taxable Income B-27
The State Trusts C-1
Tax Free vs. Taxable Income C-23
</TABLE>

Trustee:

The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
(800) 354-6565

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

SALOMONSMITHBARNEY
----------------------------
A member of citigroup [LOGO]
- --------------------------------------------------------------------------------
No person is authorized to give any information or to make any representations
with respect to this Trust, not contained in this Prospectus and you should not
rely on any other information.
- --------------------------------------------------------------------------------
Salomon Smith Barney is the service mark used by Salomon Smith Barney Inc.
<PAGE>

PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS

A. The following information relating to the Depositor is incorporated by
reference to the SEC filings indicated and made a part of this Registration
Statement.

<TABLE>
<CAPTION>
SEC FILE OR
IDENTIFICATION NO.
---------------------------------
<S> <C>
I. Bonding Arrangements and Date of Organization
of the Depositor filed pursuant to Items A and
B of Part II of the Registration Statement on
Form S-6 under the Securities Act of 1993:

Salomon Smith Barney Inc. 2-55436

II. Information as to Officers and Directors of
the Depositor filed pursuant to Schedules A
and D of Form BD under Rules 15b1-1 and 15b3-1
of the Securities Exchange Act of 1934:

Salomon Smith Barney Inc. 8-8177

III. Charter documents of the Depositor filed as
Exhibits to the Registration Statement on
Form S-6 under the Securities Act of 1933
(Charter, By-Laws):

Salomon Smith Barney Inc. 33-65332, 33-36037

B. The Internal Revenue Service Employer Identification Numbers of the
Sponsor and Trustee are as follows:

Salomon Smith Barney Inc. 13-1912900
The Chase Manhattan Bank 13-4994650
</TABLE>

UNDERTAKING

The Sponsor undertakes that it will not instruct the Trustee to accept from
(i) any insurance company affiliated with the Sponsor, in settlement of any
claim, less than an amount sufficient to pay any principal or interest (and,
in the case of a taxability redemption, premium) then due on any Security in
accordance with the municipal bond guaranty insurance policy attached to that
Security or (ii) any affiliate of the Sponsor who has any obligation with
respect to any Security, less than the full amount due pursuant to the
obligation, unless those instructions have been approved by the Securities and
Exchange Commission pursuant to Rule 17d-1 under the Investment Company Act of
1940.

II-1
<PAGE>

CONTENTS OF REGISTRATION STATEMENT

THE REGISTRATION STATEMENT ON FORM S-6 COMPRISES THE FOLLOWING PAPERS AND
DOCUMENTS:

The facing sheet of Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Registration Statement of Tax Exempt Securities Trust, Series
384, 1933 Act File No. 33-50915).
The Prospectus.
Additional Information not included in the Prospectus (Part II).
Consent of Independent Auditors.

The following exhibits:

<TABLE>
<C> <S>
1.1 --Form of Trust Indenture and Agreement (incorporated by reference to
Exhibit 4.a to the Registration Statement of Tax Exempt Securities
Trust, Series 265, 1933 Act File No. 33-15123).
1.1.1 --Form of Reference Trust Agreement (incorporated by reference to
Exhibit 1.1.1 of Tax Exempt Securities Trust, National Trust 208, 1933
Act File No. 33-58591).
1.2 --Form of Agreement Among Underwriters (incorporated by reference to
Exhibit 99 to the Registration Statement of Tax Exempt Securities
Trust, Series 384, 1933 Act File No. 33-50915).
2.1 --Form of Certificate of Beneficial Interest (included in Exhibit 1.1).
3.1 --Opinion of counsel as to the legality of the securities being issued
including their consent to the use of their name under the headings
"Taxes", "Legal Opinion" and "New York Taxes" in the Prospectus.
3.2 --Opinion of special California counsel.
3.3 --Opinion of special Maryland counsel.
3.4 --Opinion of special North Carolina counsel.
4.1 --Consent of the Evaluator.
5.1 --Consent of KPMG LLP.
</TABLE>

II-2
<PAGE>

SIGNATURES

The registrant, Tax Exempt Securities Trust, California Trust 169, Maryland
Trust 108, New York Trust 174 and North Carolina Trust 11, hereby identifies
California Trust 163 and New York Trust 168 of the Tax Exempt Securities Trust
for purposes of the representations required by Rule 487 and represents the
following:

(1) That the portfolio securities deposited in the series as to the
securities of which this Registration Statement is being filed do not
differ materially in type or quality from those deposited in such previous
series;

(2) That, except to the extent necessary to identify the specific
portfolio securities deposited in, and to provide essential financial
information for, the series with respect to the securities of which this
Registration Statement is being filed, this Registration Statement does not
contain disclosures that differ in any material respect from those
contained in the registration statements for such previous series as to
which the effective date was determined by the Commission or the staff; and

(3) That it has complied with Rule 460 under the Securities Act of 1933.

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement or amendment thereto to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of New
York, and State of New York, on the 16th day of July, 1999.

Signatures appear on page II-4.

A majority of the members of the Board of Directors of Salomon Smith Barney
Inc. has signed this Registration Statement or Amendment to the Registration
Statement pursuant to Powers of Attorney authorizing the person signing this
Registration Statement or Amendment to the Registration Statement to do so on
behalf of such members.

II-3
<PAGE>

Salomon Smith Barney Inc., Depositor

/s/ George S. Michinard, Jr.
By .................................
(George S. Michinard, Jr.)

By the following persons*, who
constitute a majority of the
directors of Salomon Smith Barney
Inc.:

Deryck C. Maughan

Michael A. Carpenter

/s/ George S. Michinard, Jr.
By ..................................
(George S. Michinard, Jr.,
Attorney-in-Fact)
- --------
* Pursuant to Powers of Attorney filed as exhibits to Registration Statement
Nos. 333-62533 and 333-66875.

II-4

<PAGE>

Exhibit 3.1

BATTLE FOWLER LLP
A Limited Liability Partnership
Park Avenue Tower
75 East 55th Street
New York, N.Y. 10022
(212) 856-7000
July 15, 1999

Salomon Smith Barney Inc.
Unit Trust Department
388 Greenwich Street, 23rd Floor
New York, New York 10013

Re: Tax Exempt Securities Trust, California Trust 169, Maryland Trust 108,
New York Trust 174 and North Carolina Trust 11

Dear Sirs:

We have acted as special counsel for Salomon Smith Barney Inc. as Depositor,
Sponsor and Principal Underwriter (the "Depositor") of Tax Exempt Securities
Trust, California Trust 169, Maryland Trust 108, New York Trust 174 and North
Carolina Trust 11 (collectively, the "Trusts") in connection with the deposit
of securities (the "Securities") therein pursuant to the Trust Agreements
referred to below, by which the Trusts were created and under which the units
of fractional undivided interest (collectively, the "Units") have been issued.
Pursuant to the Trust Agreements the Depositor has transferred to the Trusts
certain long-term bonds and contracts to purchase certain long-term bonds
together with irrevocable letters of credit to be held by the Trustee upon the
terms and conditions set forth in the Trust Agreements. (All bonds to be
acquired by the Trusts are collectively referred to as the "Bonds".)

In connection with our representation, we have examined the originals or
certified copies of the following documents relating to the creation of the
Trusts, the deposit of the Securities and the issuance and sale of the Units:
(a) the Trust Indenture and Agreement dated July 16, 1987 and the Reference
Trust Agreements of even date herewith relating to each Trust (collectively,
the "Trust Agreements") among the Depositor, The Chase Manhattan Bank as
Trustee, and Kenny S&P Evaluation Services, as Evaluator; (b) the Closing
Memorandum relating to the deposit of the Securities in the Trusts; (c) the
Notification of Registration on Form N-8A and the Registration Statement on
Form N-8B-2, as amended, relating to the Trusts, as filed with the Securities
and Exchange Commission (the "Commission") pursuant to the Investment Company
Act of 1940 (the "1940 Act"); (d) the Registration Statements on Form S-6
(Registration Nos. 333-80727, 333-74125, 333-74131 and 333-82761) filed with
the Commission pursuant to the Securities Act of 1933 (the "1933 Act"), and
Amendment No. 1 thereto (said Registration Statements, as amended by said
Amendment No. 1 being herein called the "Registration Statement"); (e) the
proposed form of final prospectus (the "Prospectus") relating to the Units,
which is expected to be filed with the Commission this day; (f) resolutions of
the Executive Committees of the Depositor authorizing the execution and
delivery by the Depositor of the Trust Agreements and the consummation of the
transactions contemplated thereby; (g) the Certificates of Incorporation and
By-laws of the Depositor, each certified to by an authorized officer of the
Depositor as of a recent date; (h) a certificate of an authorized officer of
the Depositor with respect to certain factual matters contained therein
("Officers Certificate"); and (i) certificates or telegrams of public
officials as to matters set forth upon therein.

We have assumed the genuineness of all agreements, instruments and documents
submitted to us as originals and the conformity to originals of all copies
thereof submitted to us. We have also assumed the genuineness of all
signatures and the legal capacity of all persons executing agreements,
instruments and documents examined or relied upon by us.

Where matters are stated to be "to the best of our knowledge" or "known to
us," our knowledge is limited to the actual knowledge of those attorneys in
our office who have performed services for the Trust, their review of
documents provided to us by the Depositor in connection with this engagement
and inquiries of officers of the Depositor, the results
<PAGE>

of which are reflected in the Officers Certificate. We have not independently
verified the accuracy of the matters set forth in the written statements or
certificates upon which we have relied. We have not reviewed the financial
statements, compilation of the Bonds held by the Trusts, or other financial or
statistical data contained in the Registration Statement and the Prospectus,
as to which we understand you have been furnished with the reports of the
accountants appearing in the Registration Statement and the Prospectus. In
addition, we have made no specific inquiry as to whether any stop order or
investigatory proceedings have been commenced with respect to the Registration
Statement or the Depositor nor have we reviewed court or governmental agency
dockets.

We have relied without independent investigation upon the opinion dated the
date hereof of Brown & Wood, 555 California Street, San Francisco, Ca. 94104;
Saul, Ewing Remick & Saul LLP, 100 South Charles Street, Baltimore, Maryland
21201; and Kilpatrick Stockton LLP, 1001 West Fourth Street, Winston-Salem,
North Carolina 27101 delivered to the Depositor with respect to the questions
of law of the States of California, Maryland and North Carolina and with
respect to any disclosure contained in the Registration Statement concerning
risk factors relating to the Bonds of California Trust 169, Maryland Trust 108
and North Carolina Trust 11, respectively.

Statements in this opinion as to the validity, binding effect and
enforceability of agreements, instruments and documents are subject: (i) to
limitations as to enforceability imposed by bankruptcy, reorganization,
moratorium, insolvency and other laws of general application relating to or
affecting the enforceability of creditors' rights, and (ii) to limitations
under equitable principles governing the availability of equitable remedies.

We are not admitted to the practice of law in any jurisdiction but the State
of New York and we do not hold ourselves out as experts in or express any
opinion as to the laws of other states or jurisdictions except as to matters
of Federal and Delaware corporate law. No opinion is expressed as to the
effect that the law of any other jurisdiction might have upon the subject
matter of the opinions expressed herein under applicable conflicts of law
principles, rules or regulations or otherwise.

Based on the subject to the foregoing, we are of the opinion that:

(1) The Trust Agreements have been duly authorized and executed and
delivered by an authorized officer of the Depositor and are valid and binding
obligations of the Depositor in accordance with their respective terms.

(2) The execution and delivery of the Certificates evidencing the Units has
been duly authorized by the Depositor and such Certificates when executed by
the Depositor and the Trustee in accordance with the provisions of the
Certificates and the respective Trust Agreements and issued for the
consideration contemplated therein, will constitute fractional undivided
interests in the respective Trusts, will be entitled to the benefits of the
respective Trust Agreements, and will conform in all material respects to the
description thereof contained in the Prospectus under the caption heading
"Rights of Unit Holders--Certificates". Upon payment of the consideration for
the Units as provided in the Trust Agreements and the Registration Statement,
the Units will be fully paid and non-assessable by the Trusts.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration
Statement and in the Prospectus under the headings "Taxes" and "Legal
Opinion". This opinion is intended solely for the benefit of the addressee in
connection with the issuance of the Units of the Trust and may not be relied
upon in any other manner or by any other person without our express written
consent.

Very truly yours,

/s/ Battle Fowler LLP

<PAGE>

Exhibit 3.2

Brown & Wood LLP

555 California Street

San Francisco, Ca. 94104-1715

Telephone: 415-772-1200
Facsimile: 415-397-4621

July 15, 1999

Salomon Smith Barney Inc.
388 Greenwich Street
23rd Floor
New York, New York 10013

Re: Tax Exempt Securities Trust, California Trust 169

Ladies and Gentlemen:

You have requested our opinion as to certain California personal income tax
issues relating to California Trust 169 (the "California Trust") of the Tax
Exempt Securities Trust (the "Trust") sponsored by Salomon Smith Barney Inc.
Our opinion relates solely to the California tax matters described herein. It
is our understanding that Battle Fowler LLP has rendered an opinion, effective
as of the date hereof, as to certain federal income tax matters pertaining to
the Trust.

In rendering our opinion, we have examined and relied upon, among other
things, (1) the Form S-6 Registration Statement, as filed with the Securities
and Exchange Commission on June 15, 1999 (the "Registration Statement"),
pursuant to which you will offer to a limited number of investors (the "Unit
Holders") the opportunity to purchase fractional undivided interests in the
Trust ("Units"); (2) a copy of the Trust Indenture and Agreement, dated July
16, 1987, among Smith Barney, Harris Upham & Co. Incorporated, Kidder, Peabody
& Co. Incorporated, Drexel Burnham Lambert Incorporated, and L.F. Rothschild &
Co. Incorporated, as Depositors, United States Trust Company of New York, as
Trustee, and Standard & Poor's Corporation as Evaluator; (3) a draft of the
Reference Trust Agreement for the Tax Exempt Securities Trust, California Trust
169, dated July 15, 1999, among Salomon Smith Barney Inc., as Depositor (the
"Depositor"), The Chase Manhattan Bank, as Trustee (the "Trustee"), and Kenny
S&P Evaluation Services, a business unit of J.J. Kenny Company, Inc., a
subsidiary of The McGraw-Hill Companies, Inc., as Evaluator (the "Evaluator"),
incorporating by reference the aforementioned Trust Indenture and Agreement and
amending and supplementing the same (said Trust Indenture and Agreement and
Reference Trust Agreement being herein referred to collectively as the "Trust
Agreement"); and (4) the opinion of Battle Fowler LLP, effective as of the date
hereof, that (i) the California Trust is not an association taxable as a
corporation for federal income tax purposes, and income received by the
California Trust will be treated as the income of the Unit Holders; and (ii)
each Unit Holder of the California Trust will be considered the owner of a pro
rata portion of the California Trust under the grantor trust rules of sections
671-679 of the Code of 1986, as amended (the "Code") such that each Unit Holder
of the California Trust will be considered to have received his or her pro rata
share of interest on each Bond (which in the opinion of bond counsel for each
such Bond is excludable from gross income for Federal income tax purposes) when
received by the California Trust. Except as otherwise defined herein,
capitalized terms used herein shall have the respective meanings ascribed to
them in the Registration Statement.

The Trust consists of separate unit investment trusts designated the
California Trust and other named state trusts (each trust individually referred
to as a "State Trust" and collectively referred to as the "State Trusts"). Each
State Trust was created under the laws of the State of New York pursuant to the
Trust Agreement. Each State Trust will be administered in accordance with the
Trust Agreement as a distinct entity with separate certificates, expenses,
books and records, and the assets of one State Trust may not be commingled with
the assets of any other.
<PAGE>

Salomon Smith Barney Inc.

July 15, 1999
Page 2

The Bonds deposited in the California Trust are certain interest-bearing
obligations of the State of California or of the cities, counties and other
political subdivisions thereof, or of the Territory of Guam or the Commonwealth
of Puerto Rico. The Bonds will be held by the Trustee upon the terms and
conditions set forth in the Trust Agreement. You have advised us, and we have
relied upon the fact that, in the opinion of bond counsel to each issuer of
Bonds delivered at the time of their respective issuance, the interest on the
Bonds held in the California Trust is excludable from gross income for federal
income tax purposes and exempt from State of California personal income taxes.
We have made no independent investigation to verify the accuracy of such
conclusions and we express no opinion with respect thereto.

Under the terms and conditions of the Trust Agreement, once the original
corpus of the California Trust is acquired, the California Trust will have a
fixed portfolio of Bonds. The Trustee will not have the power to vary the
investment of the California Trust nor the power to take advantage of market
variations to improve a Unit Holder's investment, and the Trustee will have no
discretion to retain and reinvest the income or principal of the California
Trust.

Based on the foregoing, under existing California law applicable to
individuals who are California residents, we are of the opinion that:

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

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

We have not addressed, nor are we opining on, any federal income tax aspects
relating to the California Trust and, other than as specifically set forth
herein, we have not addressed, nor are we opining on, any state or local tax
aspects relating to the California Trust.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement under the Securities Act of 1933, as amended, covering
the issuance of Units in the California Trust, and to the reference to our firm
in the Registration Statement under the heading "California Trust -- California
Taxes."

This letter is furnished by us solely for your benefit, and the benefit of
The Chase Manhattan Bank, as Trustee for the California Trust, in connection
with the Registration Statement for the public offering of interests in the Tax
Exempt Securities Trust, and this letter may not be relied upon by any other
person without our prior written consent.

Very truly yours,

/s/ Brown & Wood LLP

<PAGE>

EXHIBIT 3.3

SAUL, EWING, REMICH & SAUL LLP
<TABLE>
<CAPTION>

<S> <C> <C>
--------------
ATTORNEYS AT LAW
100 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201-2773
--------------
TELEPHONE 410/332 8600 10480 LITTLE PATUXENT PARKWAY
WASHINGTON AREA 301/470 7400 COLUMBIA, MARYLAND 21044-3506
410/740 8500
- -------------- --------------
Robert A. Spar File Number
410/332 8654
</TABLE>
July 15, 1999

Salomon Smith Barney Inc. The Chase Manhattan Bank
388 Greenwich Street 4 New York Plaza
23rd Floor New York, New York 10004
New York, New York 10013

Re: Tax Exempt Securities Trust, Maryland Trust 108

Ladies and Gentlemen:

We have acted as special Maryland counsel to you as Sponsors (the "Sponsors")
and trustee of the above-referenced tax-exempt securities trust (the "Trust"),
which includes an individual trust (the "Maryland Trust") holding certain bonds
and other securities (the "Bonds"). You have asked that we, acting in such
capacity, render an opinion to you with respect to certain matters relating to
the tax treatment under the laws of Maryland of the Maryland Trust and of the
units of fractional undivided interest in the Maryland Trust (the "Units") to
be issued pursuant to the Registration Statement (No. 333-74125) on Form S-6
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Registration Statement").

As a basis for our opinions, we have examined such provisions of Maryland law
as we considered relevant. We are relying on the opinions of Battle Fowler,
LLP, special counsel to the Sponsors, as to the federal income tax consequences
of an investment in the Trust.

Each Unit represents a fractional undivided interest in the Maryland Trust.
In the opinion of Battle Fowler, LLP, for federal income tax purposes:

(a) the Maryland Trust is not an association taxable as a corporation;

(b) a holder of units ("Holder") is considered the owner of a pro rata
portion of each Bond in the Maryland Trust under the grantor trust rules of
Sections 671-678 of the Internal Revenue Code of 1986, as amended;

(c) a Holder will be considered to have received the interest on such
Holder's pro rata portion of each Bond when interest on the Bond is
received by the Maryland Trust;

(d) a Holder will recognize taxable gain or loss when all or part of such
Holder's pro rata portion of a Bond in the Maryland Trust is disposed of
(whether by sale, exchange, redemption, or payment at maturity) or when the
Holder redeems or sells such Holder's units.

It is our understanding and the following opinions assume, that the Maryland
Trust will have no income other than interest income on the Bonds including,
when earned or received, any amount attributable to original issue discount
which is treated as interest income for federal income tax purposes and gain on
the disposition of the Bonds.
<PAGE>

July 15, 1999
Page 2

In general, it is noted that under the terms of the Maryland statutes which
authorize the issuance of bonds of the State of Maryland, its political
subdivisions and authorities, the Bonds, the income therefrom and any profit
made on the sale or sale thereof shall at all times be free from taxation of
every kind by the State of Maryland and by the municipalities and all other
political divisions of the State of Maryland; in general, those statutes do not
refer to estate or inheritance taxes or franchise taxes on financial
institutions which are measured by net earnings or any other taxes not levied
or assessed directly on those bonds, their transfer or the income therefrom.

Based in part, upon our understanding that the Maryland Trust consists of
Bonds issued by the State of Maryland, the Government of Puerto Rico, the
Government of Guam and their respective political subdivisions and authorities;
and that, in the opinion of bond counsel the interest on the Bonds will be
excluded form gross income for federal income tax purposes (except in certain
circumstances referred to in the Prospectus), Saul, Ewing, Remick & Saul LLP,
special Maryland counsel for this trust are the opinion that for Maryland State
and local tax purposes:

1. The Maryland Trust will not be treated as an association taxable as a
corporation, and the income of the Maryland Trust will be treated as the
income of the Holders. The Maryland Trust is not a "financial institution"
subject to the Maryland Franchise Tax measured by net earnings. The
Maryland Trust is not subject to Maryland property taxes imposed on the
intangible personal property of certain corporations.

2. Except as described below is the case of interest paid on private
activity bonds constituting a tax preference for federal income tax
purposes, a Holder will not be required to include such Holder's pro-rata
share of the earnings of, or distributions from, the Maryland Trust in such
Holder's Maryland taxable income to the extent that such earnings or
distributions represent interest excludable from gross income for federal
income tax purposes received by the Maryland Trust or obligations of the
State of Maryland, the Government of Puerto Rico, or the Government of Guam
and their respective political subdivisions and authorities. Interest on
Bonds is not subject to the Maryland Franchise Tax imposed on "financial
institutions."

3. In the case of taxpayers who are individuals, Maryland Presently
imposes an income tax on items of tax preference with reference to such
items as defined in the Internal Revenue Code, as amended, for purposes of
calculating the federal alternative minimum tax. Interest paid on certain
private activity bonds is a preference item for purposes of calculating the
federal alternative minimum tax. Accordingly, if the Maryland Trust holds
such bonds; 50% of the interest on such bonds in excess of a threshold
amount is taxable by Maryland.

4. A Holder will recognize taxable gain or loss, except in the case of an
individual Holder who is not a Maryland resident, when the Holder disposes
of all or part of such Holder's pro rate portion of the Bonds in the
Maryland Trust. A Holder will be considered to have disposed of all or part
of such Holder's pro rata portion of each Bond when the Holder sells or
redeems all or some of such Holder's Units. A Holder will also be
considered to have disposed of all or part of such Holder's pro rata
portion of a Bond when all or part of the Bond is disposed of by the
Maryland Trust or is redeemed or paid at maturity. Gain included in the
gross income of Holders for federal income tax purposes is, however,
subtracted from income for Maryland income tax purposes to the extent that
the gain is derived from the disposition of Bonds issued by the State of
Maryland and its political subdivisions. Profits realized on the sale or
exchange of Bonds are not subject to the Maryland Franchise Tax imposed on
"financial institutions."

5. Units of the Maryland Trust will be subject to Maryland inheritance
and estate tax only if held by Maryland residents.

6. Neither the Bonds nor the Units will be subject to Maryland personal
property tax.

7. The sales of Units in Maryland or the holder of Units in Maryland will
not be subject to Maryland Sales or Use Tax.

At your request, we have also reviewed certain official statements relating
to Bonds of the State of Maryland and certain of its subdivisions, agencies or
instrumentalities available to us as of this date with respect only to general
risk factors relating to such Bonds. We have not reviewed each official
statement relating to each of the Bonds included in the Maryland Trust. We have
neither reviewed the accuracy or completeness of, or otherwise verified, the
information

2
<PAGE>

July 15, 1999
Page 3
contained in those official statements nor have we reviewed any risk factors
which are discussed in the Prospectus other than those relating specifically to
Bonds issued by the State of Maryland, its political subdivisions and their
respective authorities. Based solely upon the review described above, we
confirm that, in our opinion, (i) the materials in the Prospectus under "State
Risks Factors; neither contain any untrue statement of, nor omit to state a
material fact included in, any of the official statements we have reviewed with
respect to Maryland and (ii) the summary of matters of Maryland law contained
in the Prospectus under "Taxes" is accurate. We hereby consent to the reference
to this firm in the Prospectus comprising a part of the Registration Statement
and we consent to the filing of this opinion as an exhibit to the Registration
Statement.

Very truly yours,

Saul, Ewing, Remick & Saul LLP

/s/ Robert A. Spar
By __________________________________
Robert A. Spar

<PAGE>

EXHIBIT 3.4

<TABLE>
<S> <C>
Attorneys at Law
1001 West Fourth Street
Winston-Salem, North Carolina 27101-2400
Kilpatrick Stockton LLP Telephone: 336.607.7300
Facsimile: 336.607.7500
</TABLE>

July 15, 1999

Salomon Smith Barney, Inc.
Unit Trust Department
388 Greenwich Street, 23rd Floor
New York, New York 10013

The Chase Manhattan Bank, Trustee
4 New York Plaza
New York, New York 10004

Re: Salomon Smith Barney, Inc., Tax Exempt Securities
Trust, North Carolina Trust 11
-----------------------------------

Gentlemen:

You have requested our opinion as to the North Carolina tax consequences for
North Carolina resident taxpayers applicable to the separate North Carolina
Trust created and administered under the laws of the State of New York as part
of the Tax Exempt Securities Trust, North Carolina Trust 11.

Fractional undivided interests ("Units") in the North Carolina Trust will be
sold to various investors (together with their successors in interest, "Unit
holders"). The proceeds of sale of the Units will be invested primarily in
interest-bearing obligations issued by or on behalf of the State of North
Carolina and counties, municipalities, authorities or political subdivisions
thereof. You are relying upon the opinion of bond counsel to each issuer, and
we assume that interest on each such obligation is exempt from federal income
taxes, except that the opinions with respect to certain of such obligations may
not extend to holders who are, or are related persons to, substantial users of
the facilities financed with the proceeds thereof.

You have advised us that each Unit holder will be treated for federal income
tax purposes as the owner of a pro rata undivided interest in the entire North
Carolina Trust (corpus as well as income). Under these circumstances, it is our
understanding that the North Carolina Trust itself will not be deemed to have
any income for federal income tax purposes, but that each transaction of the
North Carolina Trust will be treated as a transaction of the several Unit
holders.

Based on the foregoing, and subject to the qualifications and limitations set
forth herein, with respect to the North Carolina tax consequences applicable to
North Carolina resident taxpayers, we are of the opinion that:
Atlanta . Augusta . Brussels . Charlotte . London . Raleigh . Stockholm .
Washington . Winston-Salem
<PAGE>

Kilpatrick Stockton LLP
July 15, 1999
Page 2

The State of North Carolina imposes a tax upon the taxable income of
individuals, corporations, estates, and trusts. Nonresident individuals are
generally taxed only on income from North Carolina sources. Corporations doing
business within and without North Carolina are entitled to allocate and
apportion their income if they have income from business activity which is
taxable in another state. The mere ownership of Units will not subject a
nonresident Unit holder to the tax jurisdiction of North Carolina.

You have advised us that for federal income tax purposes the North Carolina
Trust will be a grantor trust and not an association taxable as a corporation.
Based, upon this assumption, we are of the opinion that the North Carolina
Trust will be treated as a grantor trust for North Carolina income tax purposes
and not as an association taxable as a corporation. Each participant in the
North Carolina Trust must report his share of the taxable income of the North
Carolina Trust.

The calculation of North Carolina taxable income of an individual,
corporation, estate or trust begins with federal taxable income. Certain
modifications are specified, but no such modification requires the addition of
interest on the obligations of the State of North Carolina, its political
subdivisions, or nonprofit educational institutions organized or chartered
under the laws of North Carolina.

As a general rule, gain (or loss) from the sale of obligations held by the
North Carolina Trust (whether as a result of the sale of such obligations by
the North Carolina Trust or as a result of the sale of a Unit by a Unit holder)
is includable (or deductible) in the calculation of the Unit holder's North
Carolina taxable income. Under the language of certain enabling legislation
such as the North Carolina Hospital Authorities Act, the North Carolina Health
Care Facilities Finance Act, the North Carolina Housing Finance Agency Act, the
act establishing the North Carolina State Ports Authority, the North Carolina
Joint Municipal Electric Power and Energy Act, the act authorizing the
organization of business development corporations, the North Carolina Private
Educational Facilities Finance Act, the North Carolina Agricultural Finance
Act, and the act establishing the North Carolina Solid Waste Management Loan
Program, profits made on the sale of obligations issued before July 1, 1995, by
authorities created thereunder are made expressly exempt from North Carolina
income taxation. The exemption of such profits from North Carolina income
taxation does not require a disallowance of any loss incurred on the sale of
such obligations in the calculation of North Carolina income taxes. With
respect to North Carolina obligations issued after June 30, 1995, the treatment
of gains from the sale or disposition of such obligations is the same for
federal and North Carolina income tax purposes.

For the federal income tax purposes, interest on North Carolina obligations
that would otherwise be exempt from taxation may in certain circumstances be
taxable to the recipient. North Carolina law provides that the interest on
North Carolina obligations shall maintain its exemption from North Carolina
income taxation notwithstanding that such interest may be subject to federal
income taxation.

North Carolina imposes a tax on transfers which occur by reason of death or
by gift. Transfers of obligations of North Carolina, its political
subdivisions, agencies of such governmental units, or nonprofit educational
institutions organized or chartered under the laws of North Carolina are not
exempt from the North Carolina estate and gift taxes.

48 U.S.C. (S) 745 provides that bonds issued by the Government of Puerto
Rico, or by its authority, shall be exempt from taxation by any State or by any
county, municipality, or other municipal subdivision of any State. Accordingly,
interest on any such obligations held by the North Carolina Trust would be
exempt from the North Carolina corporate and individual income taxes. The North
Carolina Department of Revenue takes the position that gains from the sale or
other disposition of such obligations are subject to the North Carolina
corporate and individual income taxes.

We have not examined any of the obligations to be purchased by the North
Carolina Trust, nor have we made any review of the proceedings relating to the
issuance of such obligations or the basis for any opinions with respect to the
validity of such obligations or the tax-exempt status thereof for federal
income tax purposes. We have made no

2
<PAGE>

Kilpatrick Stockton LLP
July 15, 1999
Page 3
independent investigation as to, or passed on, the operation of the North
Carolina Trust or the sale of the Units in North Carolina or any other state.
No opinion was requested, nor is any opinion expressed, with respect to the tax
consequences to the Sponsor of the North Carolina Trust, any underwriters or
any broker-dealers.

We consent to the filing of this opinion as an exhibit to the Registration
Statement (file No. 333-82761) relating to the sale of the Units and to the use
of our name and the reference to our firm and our opinion in such Registration
Statement and the Prospectus included therein. In giving such consent we do not
thereby admit that we are within the category of persons whose consent is
required by Section 7 of the Securities Act of 1933, as amended, and the rules
and regulations thereunder.

Sincerely,

/s/ Kilpatrick Stockton LLP

<PAGE>

Exhibit 4.1
Standard & Poor's
A Division of the McGraw-Hill
Companies

J.J. Kenny
65 Broadway
New York, New York 10006-2551
Tel. 212/770-4422
Fax 212/797-8681
Frank A. Ciccotto, Jr.
Vice President
Tax-Exempt Evaluations

July 15, 1999

Salomon Smith Barney Inc.
388 Greenwich St., 23rd Floor
New York, N.Y. 10013

The Chase Manhattan Bank
Unit Trust Division
4 New York Plaza
New York, N.Y. 10004

Re: Tax-Exempt Securities Trust
California Trust 169
Maryland Trust 108
New York Trust 174
North Carolina Trust 11

Gentlemen:

We have examined Registration Statement File Nos. 333-80727, 333-74125, 333-
74131 and 333-82761 for the above-mentioned trusts. We hereby acknowledge that
Kenny S&P Evaluation Services, a division of J.J. Kenny Co., Inc. is currently
acting as the evaluator for the trusts. We hereby consent to the use in the
Registration Statement of the reference to Kenny S&P Evaluation Services, a
division of J.J. Kenny Co., Inc. as evaluator.

In addition, we hereby confirm that the ratings indicated in the
Registration Statement for the respective bonds comprising the trust
portfolios are the ratings indicated in our KENNYBASE database as of the date
of the evaluation report.

You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.

Sincerely,

Frank A. Ciccotto, Jr.
Vice President

<PAGE>

Exhibit 5.1

CONSENT OF INDEPENDENT AUDITORS

To the Sponsor, Trustee and Unit Holders of
Tax Exempt Securities Trust, California Trust 169, Maryland Trust 108, New
York Trust 174 and North Carolina Trust 11

We consent to the use of our report dated July 15, 1999, included herein and
to the reference to our firm under the heading "Auditors" in the Prospectus.

KPMG LLP

New York, New York
July 15, 1999