AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 18, 1996
REGISTRATION NO. 33-64253
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:
Empire State Municipal Exempt Trust, Guaranteed Series 124
B. NAME OF DEPOSITORS:
Glickenhaus & Co.
Lebenthal & Co., Inc.
C. COMPLETE ADDRESS OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:
Glickenhaus & Co. Lebenthal & Co., Inc.
6 East 43rd Street 120 Broadway
New York, New York 10017 New York, New York 10004
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
COPY OF COMMENTS TO:
MICHAEL R. ROSELLA, Esq.
SETH M. GLICKENHAUS JAMES A. LEBENTHAL Battle Fowler LLP
Glickenhaus & Co. Lebenthal & Co., Inc. 75 East 55th Street
6 East 43rd Street 120 Broadway New York, New York 10022
New York, New York 10017 New York, New York 10004 (212) 856-6858
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
13,000* Units of Empire State Municipal Exempt Trust, Guaranteed
Series 124 are being registered under the Securities Act of 1933 and
the Investment Company Act of 1940.
F. PROPOSED MAXIMUM AGGREGATE OFFERING PRICE TO THE PUBLIC OF THE SECURITIES
BEING REGISTERED:
$13,000,000**
G. AMOUNT OF FILING FEE (computed at one-twenty-ninth of 1 percent of the
proposed maximum aggregate offering price to the public):
$4,482.79***
H. APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration
Statement.
/x/ Check if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
- -----------------
* Including 3,000 Units registered for the purpose of resale by the Depositors.
** Estimated solely for purposes of calculating filing fee.
***$100 of this amount was previously paid.
312151.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 124
CROSS-REFERENCE SHEET
Pursuant to Rule 404(e) of Regulation C
Under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction as
to the Prospectus in Form S-6)
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
I. ORGANIZATION AND GENERAL INFORMATION
<S> <C>
1. (a)Name of trust......................... Front cover of Prospectus
(b)Title of securities issued............ Front cover of Prospectus
2. Name and address of each depositor....... Sponsors
3. Name and address of trustee.............. Trustee
4. Name and address of principal underwriters Sponsors, Underwriting Account, Back
Cover
5. State of organization of trust........... The Trust
6. Execution and termination of trust agreement The Trust, Amendment and Termination of
the Trust Agreement
7. Changes of name.......................... Not Applicable
8. Fiscal year.............................. Not Applicable
9. Litigation............................... None
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. (a)Registered or bearer securities....... Rights of Unit Holders
(b)Cumulative or distributive securities Rights of Unit Holders
(c)Redemption Rights of Unit Holders
(d)Conversion, transfer, etc Rights of Unit Holders
(e)Periodic payment plan................. Not Applicable
(f)Voting rights Amendment and Termination of the Trust
Agreement
(g)Notice to certificateholders Right of Unit Holders--Reports and
Records, Sponsors--Responsibility, Trustee--
Resignation, Amendment and Termination
of the Trust Agreement--Amendment
(h)Consents required Sponsors-Responsibility, Amendment and
Termination of the Trust Agreement
(i)Other provisions...................... The Trust-Tax Status
11. Type of securities comprising units Prospectus front cover, The Trust-Portfolio
12. Certain information regarding periodic payment
certificates............................. Not Applicable
i
312151.1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
<S> <C>
13. (a)Load, fees, expenses, etc Prospectus front cover, Summary of
Essential Financial Information, The
Trust--Expenses and Charges, Public
Offering--Offering Price, Public Offering--
Market for Units, Public Offering--
Sponsors' and Underwriters' Profits
(b)Certain information regarding periodic
payment certificates.................. Not Applicable
(c)Certain percentages Public Offering--Offering Price
(d)Other loads, fees, expenses Rights of Unit Holders--Certificates
(e)Certain profits receivable by depositors,
principal underwriters, trustee or
affiliated persons Public Offering--Offering Price, Public
Offering--Sponsors' and Underwriters'
Profits, Rights of Unit Holders--
Redemption--Purchase by the Sponsors of
Units Tendered for Redemption
(f)Ratio of annual charges to income Not Applicable
14. Issuance of trust's securities The Trust, Rights of Unit Holders--
Certificates
15. Receipt and handling of payments from
purchasers Public Offering--Offering Price, Public
Offering--Sponsors' and Underwriters'
Profits, Amendment and Termination of the
Trust Agreement
16. Acquisition and disposition of underlying
securities The Trust-Portfolio, Sponsors--
Responsibility
17. Withdrawal or redemption Public Offering--Market for Units, Rights of
Unit Holders--Redemption
18. (a)Receipt, custody and disposition of
income The Trust-Portfolio--General Considerations,
The Trust--Insurance on the Bonds, Public
Offering--Offering Price, Rights of Unit
Holders--Distribution of Interest and
Principal, Rights of Unit Holders--Reports
and Records, Amendment and Termination
of the Trust Agreement
(b)Reinvestment of distributions Automatic Accumulation Account
(c)Reserves or special funds The Trust--Expenses and Charges--Other
Charges, Rights of Unit Holders--
Distribution of Interest and Principal,
Amendment and Termination of the Trust
Agreement
(d)Schedule of distributions Not Applicable
19. Records, accounts and reports Rights of Unit Holders--Reports and
Records; Rights of Unit Holders--
Distribution of Interest and Principal,
ii
312151.1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
<S> <C>
Amendment and Termination of the Trust
Agreement
20. Certain miscellaneous provisions of trust
agreement
(a)Amendment Sponsors--Resignation, Trustee--Resignation,
Trustee--Limitations on Liability,
Amendment and Termination of the Trust
Agreement
(b)Termination Sponsors--Resignation, Trustee--Resignation,
Trustee--Limitations on Liability,
Amendment and Termination of the Trust
Agreement
(c) and (d) Trustee, removal and successor Sponsors--Resignation, Trustee--Resignation,
Trustee--Limitations on Liability,
Amendment and Termination of the Trust
Agreement
(e) and (f) Depositor, removal and successor Sponsors--Resignation, Trustee--Resignation,
Trustee--Limitations on Liability,
Amendment and Termination of the Trust
Agreement
21. Loans to security holders Not Applicable
22. Limitations on liability The Trust-Portfolio, Sponsors--Limitations
on Liability, Trustee--Limitations on
Liability
23. Bonding arrangements Additional Information - Item A
24. Other material provisions of trust agreement Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor Sponsors
26. Fees received by depositor Not Applicable
27. Business of depositor Sponsors
28. Certain information as to officials and
affiliated persons of depositor Contents of Registration Statement
29. Voting securities of depositor........... Not Applicable
30. Persons controlling depositor............ Not Applicable
31. Payments by depositor for certain services
rendered to trust........................ Not Applicable
32. Payments by depositor for certain other
services rendered to trust............... Not Applicable
33. Remuneration of employees of depositor for
certain services rendered to trust....... Not Applicable
34. Remuneration of other person for certain
services rendered to trust............... Not Applicable
IV. Distribution and Redemption of Securities
</TABLE>
iii
312151.1
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
<S> <C>
35. Distribution of trust's securities by states Public Offering--Distribution of Units
36. Suspension of sales of trust's securities Not Applicable
37. Revocation of authority to distribute.... Not Applicable
38. (a)Method of distribution Public Offering--Distribution of Units,
Public Offering--Underwriting Account,
Public Offering--Sponsors' and
Underwriters' Profits
(b)Underwriting agreements Public Offering--Distribution of Units,
Underwriting Account, Public Offering--
Sponsors' and Underwriters' Profits
(c)Selling agreements Public Offering--Distribution of Units,
Underwriting Account, Public Offering--
Sponsors' and Underwriters' Profits
39. (a)Organization of principal underwriters Sponsors
(b)N.A.S.D. membership of principal
underwriters.......................... Sponsors
40. Certain fees received by principal
underwriters Not Applicable
41. (a)Business of principal underwriters Sponsors
(b)Branch offices of principal underwriters Not Applicable
(c)Salesmen of principal underwriters.... Not Applicable
42. Ownership of trust's securities by certain
persons Not Applicable
43. Certain brokerage commissions received by
principal underwriters................... Not Applicable
44. (a)Method of valuation Prospectus front cover, Public Offering--
Offering Price, Public Offering--Distribution
of Units
(b)Schedule as to offering price Not Applicable
(c)Variation in offering price to certain
persons Public Offering--Offering Price, Public
Offering--Distribution of Units
45. Suspension of redemption rights Not Applicable
46. (a)Redemption valuation Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit
(b)Schedule as to redemption price Not Applicable
47. Maintenance of position in underlying
securities Public Offering--Market for Units; Public
Offering--Sponsors' and Underwriters'
Profits, Rights of Unit Holders--
Redemption--Purchase by the Sponsors of
Units Tendered for Redemption, Rights of
Unit Holders--Redemption--Computation of
Redemption Price per Unit
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of trustee Trustee
iv
312151.1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
<S> <C>
49. Fees and expenses of trustee The Trust--Expenses and Charges, Rights of
Unit Holders--Distribution of Interest and
Principal
50. Trustee's lien The Trust--Expenses and Charges--Other
Charges, Rights of Unit Holders--
Distribution of Interest and Principal
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's securities The Trust--Insurance on the Bonds
VII. Policy of Registrant
52. (a)Provisions of trust agreement with respect
to selection or elimination of underlying
securities Prospectus front cover, Sponsors--
Responsibility
(b)Transactions involving elimination of
underlying securities................. Not Applicable
(c)Policy regarding substitution or
elimination
of underlying securities.............. Sponsors--Responsibility
(d)Fundamental policy not otherwise covered Not Applicable
53. Tax status of trust Prospectus front cover, The Trust--Tax
Status
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during last ten years. Not Applicable
55. Hypothetical account for issuers of periodic
payment plans............................ Not Applicable
56. Certain information regarding periodic
payment certificates..................... Not Applicable
57. Certain information regarding periodic
payment plans...................... Not Applicable
58. Certain other information regarding periodic
payment plans............................ Not Applicable
59. Financial statements (Instruction 1(c) to
Form S-6) Statement of Condition
</TABLE>
v
312151.1
<PAGE>
10,000 Units
Dated: January 18, 1996
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 124
The Empire State Municipal Exempt Trust, Guaranteed Series 124 (the "Trust")
is a unit investment trust formed for the purpose of obtaining tax-exempt
interest income through investment in a fixed insured portfolio of long-term
bonds, including contracts and funds for the purchase thereof, issued by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof or issued by certain United States territories
or possessions, including Puerto Rico, and their public authorities (the
"Bonds" or the "Securities"). The Sponsors of the Trust are Glickenhaus & Co.,
and Lebenthal & Co., Inc. Units of the Trust will be offered to residents of
New York, Connecticut, Pennsylvania and Florida. On the Date of Deposit, all
of the Units and the Bonds while in the Trust will be rated AAA by Standard &
Poor's Corporation and Moody's Investors Service will assign a rating of "Aaa"
to all of the Bonds in the Trust, as insured. The value of the Units of the
Trust will fluctuate with the value of the underlying Bonds. Minimum purchase:
1 Unit.
In the opinion of counsel, under existing law, interest income to the Trust,
and, with certain exceptions, to Unit Holders is exempt from all regular
federal, New York State and New York City income taxes, but may be subject to
state and local taxes in other jurisdictions. Capital gains, if any, are
subject to tax. Interest on the Bonds will not be subject to the federal
alternative minimum tax. See "The Trust--Tax Status" in Part B of this
Prospectus.
This Prospectus consists of two parts. Part A contains the Summary of
Essential Information including descriptive material relating to the Trust,
the Statement of Condition of the Trust and the Portfolio. Part B contains
general information about the Trust. Part A may not be distributed unless
accompanied by Part B. Please read and retain both parts of this Prospectus
for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTUS PART A DATED JANUARY 18, 1996
C/M: 10726.0065 332938.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 124
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JANUARY 17, 1996 (1):
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
<TABLE>
<CAPTION>
AGENT FOR SPONSORS: GLICKENHAUS & CO. TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
DATE OF DEPOSIT: January 18, 1996
<S> <C>
Aggregate Principal Amount of Bonds in Trust: $ 10,000,000.00(2)
Number of Units: 10,000
Fractional Undivided Interest in Trust Per Unit: 1/10,000
Total Value of Securities in Portfolio (Based on Offering Side Valuations of Securities): $ 9,527,612.50
Sponsors' Initial Repurchase Price Per Unit (Total Value of Securities divided by 10,000 Units): $ 952.76(3)
Plus Sales Charge of 4.9% (on sales of fewer than 250 Units) of Public Offering Price (4): 49.09
---------------
Public Offering Price Per Unit: $ 1,001.85(5)
===============
Redemption Price Per Unit: $ 948.58(6)
Excess of Public Offering Price Over Redemption Price Per Unit: $ 53.27
Excess of Public Offering Price Over Sponsors' Initial Repurchase Price Per Unit: $ 49.09
Weighted Average Maturity of Bonds in the Trust: 28.43 years
Evaluation Time: 4:00 P.M. New York Time during the initial offering period and 2:00 P.M. New York
Time after the initial offering period.
Annual Insurance Premium (7): $1,300.00
Evaluator's Fee: $.55 per Bond for each valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.37 under the monthly and
$.97 under the semi-annual distribution plan.
Sponsors' Annual Fee: Maximum of $0.25 per $1,000 principal amount of underlying Securities. See "The
Trust--Expenses and Charges."
Sponsors' Profit (Loss) on Deposit: $58,217.00
Mandatory Termination Date: December 31, 2045
First Settlement Date: January 23, 1996
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which Trust
Agreement May be Terminated: $2,000,000 or 20% of the principal amount of the Bonds
deposited in Trust, whichever is lower.
Monthly Semi-Annual
Estimated Annual Interest Income (includes cash income accrued only): $52.16 $52.16
P Less Annual Premium on Portfolio Insurance: .13 .13
E Less Organizational Expenses (8): .39 .39
R Less Estimated Annual Expenses (9): 2.09 1.59
------ ------
Estimated Net Annual Interest Income: $49.55 $50.05
====== ======
U Estimated Interest Distribution (10): $ 4.12 $25.02
N Estimated Current Return Based on Public Offering Price (includes cash
I income accrual only) (11): 4.95% 5.00%
T Estimated Long-Term Return (12): 5.00% 5.05%
Estimated Daily Rate of Net Interest Accrual: $.13766 $.13905
Record Dates: 15th Day of Month 15th Day of
May and November
Payment Dates: 1st Day of Month 1st Day of
June and December
</TABLE>
(continued on following page)
A-2
C/M: 10726.0065 332938.1
<PAGE>
NOTES TO SUMMARY OF ESSENTIAL INFORMATION
(1) The business day prior to the date of this Prospectus. The date
of this Prospectus is the date on which the Trust Agreement was signed and the
deposit with the Trustee was made.
(2) If a Replacement Bond is not acquired when a contract for the
purchase of Bonds fails, the aggregate principal amount of the Bonds may be
reduced. See "The Trust--Portfolio--General Considerations" in Part B.
(3) Based, during the initial offering period, solely upon the
offering prices of the Securities and thereafter on the bid prices of such
Securities. See "The Trust--Market for Units" in this Part A.
(4) After the initial offering period, Units may be available for
purchase from the Sponsors at a price based upon the aggregate bid price of
the Bonds in the Trust (as determined by the Evaluator) plus a sales charge
determined in accordance with the schedule set forth in "Public
Offering--Offering Price" in Part B of this Prospectus, which is based upon
the maturities of each Bond in the Trust.
(5) No accrued interest will be added to the Public Offering Price in
connection with purchases of Units contracted for on January 18, 1996. With
respect to purchases contracted for after such date, accrued interest from
January 23, 1996 to, but not including, the date of settlement (normally three
business days after order) will be added to the Public Offering Price.
(6) Based solely upon the bid prices of the Securities. Upon tender
for redemption, the price to be paid will include accrued interest as
described in "Rights of Unit Holders--Redemption--Computation of Redemption
Price per Unit" in Part B.
(7) Based upon the aggregate principal amount of the Bonds in the
Trust. If the Trustee had exercised its right to obtain Permanent Insurance on
all of the Bonds in the Trust as of the Date of Deposit, the total cost of the
Permanent Insurance premiums for such insurance would have been $14,446.00.
(8) Although historically the sponsors of unit investment trusts
("UITs") have paid all the costs of establishing such UITs, this Trust (and
therefore the Unit holders) will bear all or a portion of its organizational
costs. Such organizational costs include: the cost of preparing and printing
the registration statement, the trust indenture and other closing documents;
and the initial audit of the Trust. Total organizational expenses will be
amortized over a five year period. See "Rights of Unit Holders--Expenses and
Charges--Initial Expenses" in Part B.
(9) Excluding insurance costs.
(notes continued on next page)
A-3
C/M: 10726.0065 332938.1
<PAGE>
(notes continued from preceding pages)
(10) The first monthly interest distribution of $3.02 per Unit will
be made on March 1, 1996 (the "First Distribution Date") to all monthly
certificateholders of record on February 15, 1996 (the "First Record Date").
The regular monthly payment will be $4.12 on April 1, 1996 and thereafter. The
first semi-annual interest distribution of $15.57 per Unit will be made on
June 1, 1996 to all semi-annual certificateholders of record on May 15, 1996.
The regular semi-annual payment will be $25.02 on December 1, 1996 and
thereafter. In order to reduce the amount of accrued interest investors have
to pay in addition to the Public Offering Price, the Trustee has agreed to
advance to the Trust the amount of accrued interest due on Securities through
and including January 18, 1996. This accrued interest will be paid to the
Sponsors as the holders of record of all Units on such date. Consequently,
when the Sponsors sell Units, 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 January 18, 1996 to but not including the date of
settlement of the investor's purchase (normally three business days after the
purchase contract), less any distributions from the Interest Account. Since a
person who contracts to purchase Units on January 18, 1996 will settle his
purchase on January 23, 1996, no accrued interest will be added to the Public
Offering Price of Units settled on that date. The Trustee will recover its
advancements (without interest or other cost to the Trust) from interest
received on the Securities deposited in the Trust. See "Rights of Unit
Holders--Redemption--Computation at Redemption Price per Unit in Part B."
(11) Calculated after payment of insurance premiums payable by the
Trust. The Estimated Current Return on such date on an identical portfolio
without such insurance would have been 5.01% based on the semi-annual payment
plan and 4.96% based on the monthly payment plan. Estimated Current Return is
calculated by dividing the estimated net annual interest income received in
cash per Unit by the Public Offering Price. Interest income per Unit will vary
with changes in fees and expenses of the Trust and the Evaluator, and with the
redemption, maturity, exchange or sale of Securities. This calculation, which
includes cash income accrual only, does not include discount accretion on
original issue discount bonds or on zero coupon bonds or premium amortization
on bonds purchased at a premium. See "The Trust--Tax Status" in Part B of this
Prospectus and "The Trust--Estimated Current Return and Estimated Long-Term
Return to Unit Holders" in this Part A.
(12) Calculated after payment of insurance premiums payable by the
Trust. The Estimated Long-Term Return on such date on an identical portfolio
without such insurance would have been 5.06% based on the semi-annual payment
plan and 5.01% based on the monthly payment plan. Estimated Long-Term Return
is calculated by using a formula that takes into account the yields (including
accretion of discounts and amortization of premiums) of the individual Bonds
in the Trust's portfolio, weighted to reflect the market value and time to
maturity (or, in certain cases, to earlier call date) of such Bonds, adjusted
to reflect the Public Offering Price (including sales charge and expenses) per
Unit. This calculation does not take into account delays in payment to Unit
holders for the first few months of the Trust's operations, which reduces the
Long-Term Return number. See "The Trust--Estimated Current Return and
Estimated Long-Term Return to Unit Holders" in this Part A.
A-4
C/M: 10726.0065 332938.1
<PAGE>
The Trust
Empire State Municipal Exempt Trust (the "Fund"), Guaranteed Series
124 (the "Trust") is one of a series of similar but separate unit investment
trusts created under the laws of the State of New York by a Trust Indenture
and Agreement* (the "Trust Agreement"), dated the Date of Deposit, among
Glickenhaus & Co. and Lebenthal & Co., Inc. as sponsors (the "Sponsors"), The
Bank of New York, as trustee (the "Trustee"), and Muller Data Corporation, as
evaluator (the "Evaluator"). The objective of the Trust is to obtain
tax-exempt interest income through an investment in a fixed insured portfolio
consisting primarily of various long-term municipal bonds with average
maturities of over 10 years. Insurance does not protect against the risk of
market fluctuations on the underlying bonds in the Trust's portfolio and of
the units of the Trust. No assurance can be given that the Trust's objectives
will be achieved as these objectives are subject to the continuing ability of
the respective issuers of the bonds to meet their obligations or of the
insurer to meet its obligations under the insurance. In addition, an
investment in such portfolio can be affected by fluctuations in interest
rates.
Certain of the Bonds in the Trust may be purchased at prices which
result in the portfolio as a whole being purchased at a discount due to
original issue discount, market discount or the inclusion of zero coupon
bonds. Bonds selling at market discount tend to increase in market value as
they approach maturity when the principal amount is payable, thus increasing
the potential for gain (all or a portion of which may be taxable as ordinary
income). Any income other than any earned original issue discount will be
taxable and will not be realized until maturity, redemption or sale of the
underlying Bonds or Units of the Trust. In the case of Bonds acquired at a
market discount, gain will be treated as ordinary income to the extent of
accrued market discount. At the time of the original issuance of the Bonds
held by the Trust, opinions relating to the validity of the Bonds and the
exemption of interest thereon from Federal income tax and New York State and
City personal income tax were (or with respect to "when-issued" Bonds will be)
rendered by bond counsel to the issuing governmental authority. The continued
tax-exempt status will depend upon the issuer's ability to comply with the
provisions of the Internal Revenue Code of 1986, as amended. See "The
Trust--Tax Status" in Part B of this Prospectus. On the Date of Deposit, the
Sponsors, acting for the Underwriting Account (see "Underwriting Account" in
this Part A), deposited with the Trustee delivery statements relating to
contracts for the purchase of $10,000,000 aggregate principal amount for the
interest-bearing obligations, including funds (represented by cash, cash
equivalents and/or an irrevocable letter of credit issued by a major financial
institution) for the purchase of certain such obligations (the "Bonds" or the
"Securities"). The Trustee thereafter delivered to the Sponsors a registered
certificate of 10,000 Units, representing the entire ownership of the Trust,
which Units are being offered hereby.
In view of the Fund's objectives, the following factors, among
others, were considered in selecting the Bonds: (1) all the Bonds are
obligations of the State of New York and counties, municipalities, authorities
or political subdivisions thereof or issued by certain United States
territories or possessions, including Puerto Rico, and their public
authorities so that the interest on them will be exempt from Federal, New York
State and New York City income tax under existing law; (2) the Bonds are
varied as to purpose of issue; (3) in the opinion of the Sponsors, the Bonds
are fairly valued relative to other bonds of comparable quality and maturity;
and (4) MBIA Insurance Corporation insurance for the payment of principal and
interest on the Securities is available. Subsequent to the Date of Deposit, a
Bond may
- --------
* References in this Prospectus to the Trust Agreement are qualified in
their entirety by the Trust Agreement which is incorporated herein by
reference.
A-5
C/M: 10726.0065 332938.1
<PAGE>
cease to be rated or its rating may be reduced. In the event a Bond's rating
is downgraded to below investment grade (i.e., "high yield" or "junk bond"
status), such a Bond, as compared to an investment grade bond, is subject to
greater risk of downward price volatility in periods of economic uncertainty.
If a Bond in the Trust is downgraded to high yield bond status, a decrease in
the net asset value of the Trust may result. If such a decrease in net asset
value occurs and Units of the Trust are tendered for redemption, the Trust may
be forced to liquidate some of the Bonds at a loss. If such redemptions are
substantial enough, this could trigger a complete and unexpected liquidation
of the Trust before maturity, resulting in unanticipated losses for investors.
Notwithstanding such risk, neither the downgrading of a Bond to below
investment grade nor a Bond's ceasing to be rated, requires an elimination of
such Bond from the portfolio of the Trust, but such an event may be considered
in the Sponsors' determination to direct the Trustee to dispose of the Bonds.
See "Sponsors--Responsibility" in Part B.
Public Offering Price
The Public Offering Price of the Units of the Trust during the
initial offering period is equal to the aggregate offering price of the
Securities in the respective Trust's portfolio divided by the number of Units
outstanding, plus a sales charge equal to 4.9% of the Public Offering Price of
the Trust on sales of fewer than 250 Units. In addition, for Units ordered
after the date hereof, accrued interest will be payable from the First
Settlement Date for Units of the Trust (three business days from the date
hereof) to the expected date of settlement (three business days after order).
For additional information regarding the Public Offering Price, the
descriptions of interest and principal distributions, repurchase and
redemption of Units and other essential information regarding the Trust, see
the "Summary of Essential Information" in this Part A. During the initial
public offering period, sales of at least 250 Units will be entitled to a
volume discount from the Public Offering Price. See "Public Offering--Offering
Price" in Part B. If the Units of the Trust had been available for sale on
January 17, 1996, the Public Offering Price per Unit would have been
$1,001.85.
Market for Units
The Sponsors, although they are not obligated to do so, currently
intend to maintain a secondary market for the Units in the Trust at prices
based upon the aggregate bid price of the Securities plus accrued interest, if
any, and a sales charge of 4.9% of the Public Offering Price of the Trust at
the time. If such a market is not maintained, a Unit holder may be able to
dispose of his Units only through redemption at prices based upon the
aggregate bid price of the Securities. The purchase price of the Securities,
if they were available for direct purchase by investors, would not include the
sales charge included in the Public Offering Price of the Units. Neither the
bid nor the offering side valuations of the underlying Securities or of the
Units of the Trust, absent situations in which Securities are in default in
payment of principal or interest or in significant risk of such default,
include value, if any, attributable to the insurance obtained by the Trust.
See "Public Offering--Market for Units" in Part B of this Prospectus.
Estimated Current Return and Estimated Long-Term Return
Units of the Trust are offered to investors on a "dollar price" basis
(using the computation method previously described under "Public Offering
Price") as distinguished from a "yield price" basis often used in offerings of
tax exempt bonds (involving the lesser of the yield as computed to maturity of
bonds or to an earlier redemption date). Since they are offered on a dollar
price basis, the rate of return on an investment in Units of the Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term
Return."
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Estimated Long Term Return is calculated by: (1) computing the yield
to maturity or to an earlier call date (whichever results in a lower yield)
for each Bond in the Trust portfolio in accordance with accepted practices,
which practices take into account not only the interest payable on the Bonds
but also the amortization of premiums or accretion of discounts, if any; (2)
calculating the average of the yields for the Bonds in the Trust portfolio by
weighing each Bond's yield by the market value of the Bond and by the amount
of time remaining to the date to which the Bond is priced (thus creating an
average yield for the portfolio of the Trust); and (3) reducing the average
yield for the portfolio of the Trust in order to reflect estimated fees and
expenses of the Trust and the maximum sales charge paid by Unit holders. The
resulting Estimated Long Term Return represents a measure of the return to
Unit holders earned over the estimated life of the Trust. The Estimated Long
Term Return as of the day prior to the Date of Deposit is stated for the Trust
under "Summary of Essential Information" in Part A.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit. In
contrast to the Estimated Long Term Return, the Estimated Current Return does
not take into account the amortization of premium or accretion of discount, if
any, on the Bonds in the portfolio of the Trust. Moreover, because interest
rates on Bonds purchased at a premium are generally higher than current
interest rates on newly issued bonds of a similar type with comparable rating,
the Estimated Current Return per Unit may be affected adversely if such
Securities are redeemed prior to their maturity. On the day prior to the Date
of Deposit, the Estimated Net Annual Interest Income per Unit divided by the
Public Offering Price resulted in the Estimated Current Return stated for the
Trust under "Summary of Essential Information" in Part A.
The Estimated Net Annual Interest Income per Unit of the Trust will
vary with changes in the fees and expenses of the Trustee and the Evaluator
applicable to the Trust and with the redemption, maturity, sale or other
disposition of the Bonds in the Trust. The Public Offering Price will vary
with changes in the offering prices (bid prices in the case of the secondary
market) of the Bonds. Therefore, there is no assurance that the present
Estimated Current Return or Estimated Long Term Return will be realized in the
future. A schedule of cash flow projections is available from the Sponsor upon
request.
Distributions
Distributions of interest received by the Trust, pro rated on an
annual basis, will be made semi-annually unless the Unit holder elects to
receive them monthly. The first monthly distribution will be $3.02 for Units
of the Trust and will be made on March 1, 1996, to monthly Unit holders of
record on February 15, 1996, and $4.12 thereafter. The first semi-annual
distribution will be $15.57 for Units of the Trust and will be made on June 1,
1996, to semi-annual Unit holders of record on May 15, 1996, and $25.02
thereafter. See "Rights of Unit Holders--Distribution of Interest and
Principal" in Part B of this Prospectus.
Each Unit of the Trust at the Date of Deposit represents 1/10,000
fractional undivided interest in the $10,000,000 face amount of underlying
Bonds and net income of the Trust in the ratio of 1 Unit for each $1,000
principal amount of underlying Bonds (including contracts and funds for the
purchase thereof) in the Trust.
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<PAGE>
Automatic Accumulation Account
Distributions from the Trust are made semi-annually unless the Unit
holder elects to receive them monthly. Unit holders of the Trust have the
option, however, of either receiving their interest check, together with any
principal payments, from the Trustee or participating in the Automatic
Accumulation Account reinvestment program offered by the Sponsors (the
"Plan"). Under the Plan, a Unit holder may elect to have distributions from
Units in the Trust automatically reinvested in shares of an open-end mutual
fund. For a description of the fund involved see "Automatic Accumulation
Account" in Part B. Participation in the Plan is conditioned on the
participating fund's lawful qualification for sale in the state in which the
Unit holder is a resident. The Plan is not designed to be a complete
investment program. See "Automatic Accumulation Account" in Part B for details
on how to enroll in the Plan and how to obtain a prospectus.
Insurance
Insurance guaranteeing the payment of all principal (either at stated
maturity or by advancement of maturity pursuant to a mandatory sinking fund
payment) and interest on each of the Bonds in the Trust as such payments shall
become due but shall not be paid has been obtained by the Trust from MBIA
Insurance Corporation (sometimes referred to hereinafter as the "Insurer").
Insurance obtained by the Trust applies only while Bonds are retained in the
Trust. Pursuant to an irrevocable commitment of the Insurer, in the event of a
sale of a Bond from the Trust, the Trustee has the right to obtain permanent
insurance for such Bond upon the payment of a single predetermined insurance
premium from the proceeds of the sale of such Bond. Insurance obtained by the
Trust relates only to the payment of principal and interest on the Bonds in
the Trust but neither covers the nonpayment of any redemption premium on the
Bonds nor guarantees the market value of the Units. With respect to
small-issue industrial development Bonds and pollution control revenue Bonds
covered by the insurance, the Insurer also guarantees any accelerated payments
required to be made by or on behalf of an issuer of such Bonds if there occurs
an event which results in the loss of the tax-exempt status of interest on
such Bonds, including principal, interest or premium payments payable thereon,
if any, as and when thereby required. The insurance does not otherwise
guarantee any accelerated payments required to be made by or on behalf of an
issuer of other than small-issue industrial development Bonds or pollution
control revenue Bonds if there occurs an event which results in the loss of
the tax-exempt status of such Bonds nor will the insurance cover accelerated
payments of principal or penalty interest or premiums unrelated to taxability
of interest on any of the Bonds. In the event of such an acceleration, the
payments guaranteed by the Insurer shall be made in such amounts and at such
times as such payments would have been made absent such acceleration. As a
result of the MBIA Insurance Corporation insurance, Moody's Investors Service
has assigned a rating of "Aaa" to all of the Bonds in the Trust, as insured,
and Standard & Poor's Corporation has assigned a rating of "AAA" to the Units
and Bonds while in the Trust. See "The Trust--Insurance on the Bonds"in Part
B. No representation is made as to any insurer's ability to meet its
commitments.
Some of the Bonds in the Trust may also have been previously insured
by insurance obtained by the issuers of such Bonds or by persons other than
the Trust ("Pre-insured Bonds"). Five of the issues (93.5%) initially
deposited in the Trust was a Pre-insured Bond. Insurance obtained by the Trust
from the Insurer is effective only while the Bonds thus insured are held in
such Trust; however, insurance previously obtained by the issuer or by persons
other than the Trust, for which a single premium has been paid, is effective
so long as the Pre-insured Bonds are outstanding.
No representation is made as to the ability of any insurer to meet its
commitments.
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<PAGE>
Neither the Public Offering Price nor any evaluation of Units of the
Trust for purposes of repurchases or redemptions reflects any element of value
for the insurance obtained by the Trust unless Securities are in default in
payment of principal or interest or, in the Sponsors' opinion, is in
significant risk of such default. See "Public Offering--Offering Price" in
Part B of this Prospectus. On the other hand, the value, if any, of insurance
obtained by the issuer of the Securities or by parties other than the Trust is
reflected and included in the market value of such Securities.
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. If
an issue is accepted for MBIA Insurance Corporation insurance, a
non-cancelable policy for the payment of interest on and principal of the
bonds is issued by the Insurer. A single or annual premium is paid by the
issuer or any other party for its insurance on Pre-insured Bonds, and a
monthly premium is paid by the Trust for the insurance it obtains from the
Insurer on the Bonds in the Trust that are not also MBIA Insurance Corporation
Pre-insured Bonds or Municipal Bond Insurance Association Pre-insured Bonds.
No premium will be paid by the Trust for the insurance it obtains from the
Insurer on Bonds that are also MBIA Insurance Corporation Pre-insured Bonds or
Municipal Bond Insurance Association Pre-insured Bonds. Pursuant to an
irrevocable commitment of the Insurer, upon the sale of a Bond from the Trust,
the Trustee has the right to obtain permanent insurance with respect to such
Bond upon the payment of a single predetermined insurance premium from the
proceeds of the sale of such Bond. It is expected that the Trustee will
exercise the right to obtain permanent insurance for a Bond in the Trust upon
instruction from the Sponsors whenever the value of that Bond insured to its
maturity less the applicable permanent insurance premium and the related
custodial fee exceeds the value of the Bond without such insurance. See "The
Trust-- Insurance on the Bonds" in Part B of this Prospectus.
The Portfolio
The portfolio of the Trust contains contracts to purchase 6 issues of
Bonds issued by entities located in New York or certain United States
territories or possessions, including Puerto Rico. All such contracts are
expected to be settled by January 23, 1996. The following information is being
supplied to inform Unit holders of circumstances affecting the Trust. 6.5% of
the aggregate principal amount of the Bonds in the portfolio are general
obligations of the governmental entity issuing them which are backed by the
taxing power thereof. None of the aggregate principal amount of the Bonds in
the portfolio are payable from appropriations. 93.5% of the aggregate
principal amount of the Bonds in the portfolio are payable from the income of
specific projects or authorities and are not supported by the issuers' power
to levy taxes. Although income to pay such Bonds may be derived from more than
one source, the primary sources of such income, the number of issues (and the
related dollar weighted percentage of such issues) deriving income from such
sources and purpose of issue are as follow: General Obligation, 1 (6.50%);
Health Care, 2 (36.50%); Higher Education, 1 (20.00%); Transportation, 1
(22.00%); and Water & Sewer, 1 (15.00%). The Trust is deemed to be
concentrated in the Health Care category.* Prior to their deposit in the
Trust, 5 of the issues (93.50%) were rated AAA by Standard and Poor's
Corporation; and 1 issue (6.50%) was rated Baa1 by Moody's Investors
- --------
* A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or
more of the aggregate face amount of the portfolio. See "The
Trust--General Considerations" in Part B of this Prospectus.
A-9
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<PAGE>
Service.* Bonds rated Baa have adequate capacity to pay interest and to repay
principal, however, such Bonds may have certain speculative characteristics as
well. Furthermore, Bonds rated Baa are more sensitive to adverse economic
changes or individual corporate developments. See "Description of Bond
Ratings" in Part B of this Prospectus. For a more detailed discussion, it is
recommended that Unit holders consult the official statements for each
security in the portfolio of the Trust.
None of the Bonds initially deposited in the Trust have been
purchased on a "when issued" basis and none of the Bonds initially deposited
in the Trust have been purchased on a delayed settlement basis. Normally,
delivery of "when issued" Bonds and delayed settlement Bonds is expected to
take place within 30 days after the First Settlement Date. Accordingly,
delivery may be delayed or may not occur. Interest on such Bonds begins
accruing to the benefit of Unit holders on the date of delivery. Holders of
Units will be "at risk" with respect to such Bonds (i.e., may derive either
gain or loss from fluctuations in the offering side valuation of such Bonds)
from the date they commit for Units. Moreover, the insurance on the Bonds in
the portfolio obtained by the Trust does not cover such Bonds until they are
delivered to the Trust. See "The Trust--Portfolio--General Considerations" in
Part B.
93.5% of the aggregate principal amount of the Bonds in the Trust are
original issue discount bonds and have mandatory sinking fund installment
provisions at redemption prices equal to the compound accreted value on the
date of redemption. Of these original issue discount bonds, none are zero
coupon bonds. 6.50% of the aggregate principal amount of the Bonds in the
Trust are zero coupon that do not have mandatory sinking fund installment
provisions. Zero coupon bonds do not provide for the payment of any current
interest and provide for payment and maturity at par value unless sooner sold
or redeemed. The market for zero coupon bonds is subject to greater
fluctuations than coupon bonds in response to changes in interest rates. (See
"Original Issue Discount and Zero Coupon Bonds" in Part B of this Prospectus).
On the Date of Deposit, the offering side valuation of portfolio numbers 1 and
2 for the Trust were at a premium and these bonds are subject to retirement or
refunding within ten years of the Date of Deposit. On the Date of Deposit,
based on the offering side valuation, none of the aggregate principal amount
of the Bonds were at par, 58% of the aggregate principal amount of the Bonds
were at a discount from par and 42% of the aggregate principal amount of the
Bonds were at a premium.
An investment in Units of the Trust should be made with an
understanding of the risks entailed in investments in fixed-rate bonds,
including the risk that the value of such bonds (and, therefore, of the Units)
will decline with increases in interest rates or a decrease in the federal or
New York State income tax rate. Inflation and recession, as well as measures
implemented to address these and other economic problems, contribute to
fluctuations in interest rates and the values of fixed-rate bonds generally.
Additionally, changes in the tax treatment of bonds may have an adverse impact
on the value of the Units. The Sponsors cannot predict future economic
policies or their consequences, nor can they predict the course or extent of
such fluctuations in the future.
- --------
* For the meanings of ratings, including the symbols "p" and "Con. (. . .),"
see "Description of Bond Ratings" in Part B of this Prospectus. Security
letter ratings may be modified by the addition of a plus or minus sign,
when appropriate, to show relative standing within the major rating
categories. There can be no assurance that the economic and political
conditions on which the ratings of the Bonds in any Trust are based will
continue or that particular Bond issues may not be adversely affected by
changes in economic, political or other conditions that do not affect the
above ratings. See "The Trust--Special Factors Affecting New York" and
"The Trust--General Considerations" in Part B of this Prospectus.
A-10
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<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Sponsors, Trustee, and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 124
We have audited the Statement of Condition of Empire State Municipal
Exempt Trust, Guaranteed Series 124, including the Portfolio as of January 18,
1996. This financial statement is the responsibility of the Sponsors. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the Sponsors, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. An irrevocable letter of credit deposited on January 18, 1996
in the amount required to purchase securities, as described in the Statement
of Condition, was confirmed to us by the Trustee.
In our opinion, the Statement of Condition referred to above presents
fairly, in all material respects, the financial position of Empire State
Municipal Exempt Trust, Guaranteed Series 124 at January 18, 1996 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
January 18, 1996
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 124
STATEMENT OF CONDITION AS OF DATE OF DEPOSIT
January 18, 1996
TRUST PROPERTY
Investment in Securities:
Contracts to purchase underlying Securities (1)(2)........ $ 9,527,612.50
Accrued interest receivable (2)................................ 104,872.74
Organizational costs (3)....................................... 19,500.00
---------------
Total.............................................. $ 9,651,985.24
=============
LIABILITIES AND INTEREST OF UNIT HOLDERS
Liabilities:
Accrued interest receivable (2).............................$ 104,872.74
Accrued liability (3)....................................... 19,500.00
--------------
124,372.74
Interest of Unit holders:
Units of fractional undivided interest outstanding (10,000):
Cost to investors (4).......................................$10,018,502.50
Less--gross underwriting commission (5)..................... 490,890.00
-------------
Net interest of Unit holders..................................... 9,527,612.50
--------------
Total................................................$ 9,651,985.24
==============
- ---------------
(1) Aggregate cost to the Trust of the Securities listed under
"Portfolio" is based on offering side valuation determined by the Evaluator on
the basis set forth under "Public Offering--Offering Price" in Part B. The
aggregate bid side evaluation of the Securities in the portfolio, as
determined by the Evaluator, as of the Date of Deposit was $9,485,850.00. An
irrevocable letter of credit issued by Bankers Trust, in an aggregate amount
equal to or in excess of $9,633,382.47, has been deposited with the Trustee.
The amount of such letter of credit includes: $9,527,612.50, the amount
required to purchase the tax-exempt securities listed in the related
portfolio, plus $112,118.40 covering accrued interest through expected dates
of delivery.
(2) On the basis set forth under "Rights of Unit
Holders--Distribution of Interest and Principal" in Part B the Trustee will
advance an amount equal to the accrued interest on the Securities as of
January 23, 1996 (the "First Settlement Date") plus any cash received by the
Trustee with respect to interest on the Securities prior to such date, and the
same will be distributed to the Sponsors on the First Settlement Date.
Consequently, the amount of interest accrued on a Unit to be added to the
public offering price thereof will include only such accrued interest from the
First Settlement Date to the date of settlement, less all withdrawals and
deductions from the Interest Account subsequent to the First Settlement Date
made with respect to the Unit.
(3) Organizational costs incurred by the Trust have been deferred and
will be amortized over a five year period. The Trust will reimburse the
Sponsors for actual organizational costs incurred.
(4) Aggregate public offering price (exclusive of interest) is
computed on 10,000 Units on the basis set forth above under "Public Offering--
Offering Price" in Part B.
(5) A sales charge of 4.9% computed on 10,000 Units. See "Public
Offering--Offering Price" in Part B for volume discounts on sales of 250 Units
or more.
A-12
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 124
Portfolio as of Date of Deposit, January 18, 1996
<CAPTION>
Redemption Features
Port- Coupon Ant.--Anticipated Yield Cost of
folio Rating Principal Represented by Contracts to Rate and S.F.--Sinking Fund to Securities
No. (1)(2) Amount (3) Purchase Securities (4) Maturity Opt.--Optional (5) Maturity to Trust(6)(7)
- ---------------------------------- ---------------------------------------- ---------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 AAA/Aaa 2,200,000 Buffalo & Fort Erie Public Bridge 5.750% 01/01/16@100 Ant. 467% $2,250,600.00
Authority Toll Bridge System 01/01/25 01/01/05 @ 101 Opt.
Revenue Bond Series 1995 (MBIA
Insured)
2 AAA/Aaa 2,000,000 New York State Medical Care, 5.700 02/15/19 @ 100 Ant. 5.563 2,020,000.00
Facilities Finance Agency, 02/15/29 08/15/03 @ 102 Opt.
FHA-Insured Mortgage Revenue
Bonds, 1993 Series A, St. Luke's -
Roosevelt Hospital Center (MBIA
Insured)
3 AAA/Aaa 2,000,000 Dormitory Authority of the State 5.500 07/01/18 @ 100 Ant. 5.585 1,977,000.00
of New York University of Rochester, 07/01/21 07/01/04 @ 102 Opt.
Strong Memorial Hospital Revenue
Bonds, Series 1994 (MBIA Insured)
4 AAA/Aaa 1,500,000 New York City Municipal Water 5.500 06/15/21 @ 100 Ant. 5.507 1,498,350.00
Finance Authority Water & Sewer 06/15/23 06/15/04 @ 101.5 Opt.
System Revenue Bonds, Fixed Rate
Fiscal 1994 Series F (MBIA
Insured)
5 AAA/Aaa 1,650,000 New York State Medical Care 5.375 02/15/15 @ 100 Ant. 5.592 1,598,850.00
Facilities Finance Agency Hospital 02/15/25 02/15/04 @ 102 Opt.
Insured Mortgage Revenue Bonds,
1994 Series A Refunding (MBIA
Insured)
6 Baa1*/Aaa 650,000 The City of New York General 0.000 No Sinking Fund 5.712 182,812.50
Obligation Bonds, Fiscal 1994 08/01/18 No Optional Call
Series E
$10,000,000 $9,527,612.50
=========== =============
</TABLE>
A-13
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<PAGE>
Notes to Portfolio
The symbol "NR" denotes a non-rated issue of Bonds.
(1) All ratings except those identified by an asterisk (*) are by Standard
& Poor's Corporation. A Standard & Poor's corporate or municipal bond rating
is a current assessment of the creditworthiness of an obligor with respect to
a specific 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, sell or hold a security, inasmuch
as it does not comment as to market price or suitability for a particular
investor. A brief description of the rating symbols and their meanings is set
forth under "Description of Bond Ratings" in Part B.
(2) Ratings in the right hand column are after deposit of these issues in
the Trust and their insurance by MBIA. Moody's Investors Service has assigned
its "Aaa" investment rating to all of the Bonds while in the Trust, as insured
by MBIA Insurance Corporation.
(3) All Bonds are represented by contracts to purchase.
(4) All contracts to purchase the Bonds were entered into from January 11,
1996 to January 16, 1996. All contracts are expected to be settled prior to or
on the First Settlement Date of the Trust which is expected to be January 23,
1996. These bonds are expected to be settled (and interest begins accruing on
these bonds to the benefit of Unit holders of the Trust) within 30 days after
the First Settlement Date.
(5) Unless otherwise indicated, there is shown under this heading the year
in which each issue of bonds initially is redeemable and the redemption price
for that year. Each such issue continues to be redeemable at declining prices
thereafter, but not below par. "S.F." indicates a sinking fund has been or
will be established with respect to an issue of Bonds. In addition, certain
Bonds in the Trust may be redeemed in whole or in part other than by operation
of the stated optional call or sinking fund provisions under certain unusual
or extraordinary circumstances specified in the instruments setting forth the
terms and provisions of such Bonds. A sinking fund is a reserve fund
accumulated over a period of time for retirement of debt. "Ant." indicates the
existence of anticipated redemptions at a price of 100%. Under certain
circumstances, these anticipated redemptions can be altered. A callable bond
is one which is subject to redemption or refunding prior to maturity at the
option of the issuer. A refunding is a method by which a bond issue is
redeemed before maturity by the proceeds of a new bond issue.
Redemption pursuant to call provisions generally will, and redemption
pursuant to sinking fund provisions may, occur at times when the redeemed
Bonds have an offering side valuation which represents a premium over par. To
the extent that the Bonds were deposited in the Trust at a price higher than
the price at which they are redeemed, this will represent a loss of capital
when generally be reduced by the amount of the income which would otherwise
have been paid with respect to redeemed Bonds and there will be distributed to
Unit holders the principal amount and any premium received on such redemption.
The estimated current return in this event may be affected by such
redemptions. The Federal tax effect on Unit holders of such redemptions and
resultant distributions is described in the section entitled "The Trust--Tax
Status" in Part B.
(6) See Note (1) to "Statement of Condition as of Date of Deposit"
regarding cost of Bonds. The offering prices are greater than the current bid
prices of the Bonds which is the basis on which Redemption Price per Unit is
determined for purposes of redemption of Units (see the first paragraphs under
"Public Offering--Offering Price" and "Rights of Unit
Holders--Redemption--Computation of Redemption Price Per Unit" in Part B). On
the business day prior to the Date of Deposit the aggregate bid side valuation
of the Securities in the Trust was lower than the aggregate offering side
valuation by .438%. Yield of Bonds was computed on the basis of offering
prices on the Date of Deposit.
Bonds identified as escrowed to maturity under "Portfolio" for the Trust
in this Part A are priced to the maturity date not the call date.
(7) Annual interest income to the Trust is $521,687.50.
A-14
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<PAGE>
UNDERWRITING ACCOUNT
The names and addresses of the Underwriters and the number of Units
of the Trust each has agreed to purchase from the Underwriting Account are:
<TABLE>
<CAPTION>
Name Address Units
Series 124
<S> <C> <C>
Glickenhaus & Co........................................ 6 East 43rd Street 2625
New York, New York 10017
Lebenthal & Co., Inc.................................... 120 Broadway 2625
New York, New York 10271
Gruntal & Co., Inc...................................... 14 Wall Street 1200
New York, New York 10005
Pershing (Division of Donaldson, Lufkin &
Jenrette Securities Corporation)...................... One Pershing Plaza 1000
Jersey City, New Jersey 07399
J.C. Bradford & Co...................................... 330 Commerce St. 400
Nashville, Tennessee 37201
Advest Incorporated..................................... 90 State House Square 250
Hartford, Connecticut 06103
David Lerner Associates, Inc............................ 477 Jericho Turnpike 250
Syosset, New York 11791
Josephthal Lyon & Ross Incorporated..................... 6 East 43rd Street 250
New York, New York 10017
Cadaret, Grant & Co., Inc............................... 108 W. Jefferson Street 100
Syracuse, New York 13202
Cheeners Hand & Angeline................................ 101 Washington Ave. 100
Endicott, New York 13760
Cowen & Company......................................... Financial Square 100
New York, New York 10005
Fidelity Capital Markets................................ 164 Northern Avenue 100
Boston, Massachusetts 02210
First Investors Corporation............................. 95 Wall Street 100
New York, New York 10005
Gilford Securities, Inc................................. 850 Third Avenue 100
New York, New York 10022
Nathan & Lewis Securities Inc........................... 1140 Avenue of the Americas 100
New York, New York 10036
Oppenheimer & Company................................... World Financial Center 100
New York, New York 10281
Roosevelt & Cross, Inc. ................................ 20 Exchange Place 100
New York, New York 10005
A-15
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<PAGE>
Samuel A. Ramirez & Co., Inc............................ 61 Broadway 100
New York, New York 10006
Smith Barney Inc........................................ 388 Greenwich Street 100
New York, New York 10013
Stuart, Coleman & Co., Inc.............................. 11 West 42nd Street 100
New York, New York 10036
W.H. Newbolds, a division of Fahnestock & Co............ 1500 Walnut Street 100
Philadelphia, Pennsylvania 19102
William R. Hough & Co................................... 100 Second Avenue South 100
St. Petersburg, Florida 33701
10,000
</TABLE>
A-16
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<PAGE>
TAX EQUIVALENT YIELDS
The following tables indicate the approximate yield resident individuals in
various income brackets must earn on a security subject to Federal, New York
State and New York City income taxes to receive an after-tax yield equivalent
to that provided by a tax-exempt bond yielding from 4.5% to 8.5%, based on
anticipated 1996 Federal, New York State and New York City marginal tax rates.
New York City taxpayers should refer to Table I. New York State taxpayers
outside of New York City should refer to Table II.
<TABLE>
TABLE I. COMBINED EFFECT OF FEDERAL, NEW YORK STATE AND NEW YORK CITY INCOME TAXES
<CAPTION>
Approx.
1996 To equal a tax-exempt yield of:
-----------------------------------------------------------------------------
Federal,
NYS &
NYC 4.50% 5.00%5.50% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25% 7.50% 7.75% 8.00% 8.50%
-----------------------------------------------------------------------------
If your net taxable
income1
is approximately2 Marginal
Joint Return Single Return Tax Rates4 A taxable investment would have to pay you:3
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$22,001-$40,100 $11,001-$24,000 24.79% 6.0% 6.7% 7.3% 8.0% 8.3% 8.6% 9.0% 9.3% 9.6% 10.0% 10.3% 10.6% 11.3%
- ---------------------------------------------------------------------------------------------------------------------------
$40,101-$96,900 $24,001-$58,150 36.30% 7.1% 7.9% 8.6% 9.4% 9.8% 10.2%10.6% 11.0% 11.4% 11.8% 12.2% 12.6% 13.3%
- ---------------------------------------------------------------------------------------------------------------------------
$96,901-$147,700 $58,151-$121,300 38.99% 7.4% 8.2% 9.0% 9.8% 10.2% 10.7%11.0% 11.5% 11.9% 12.3% 12.7% 13.1% 13.9%
- ---------------------------------------------------------------------------------------------------------------------------
$147,701-$263,750 $121,301-$263,750 43.41% 8.0% 8.8% 9.7% 10.6% 11.0% 11.5%11.9% 12.4% 12.8% 13.3% 13.7% 14.1% 15.0%
- ---------------------------------------------------------------------------------------------------------------------------
$263,751+ $263,751+ 46.60% 8.4% 9.4% 10.3% 11.2% 11.7% 12.2%12.6% 13.1% 13.6% 14.0% 14.5% 15.0% 15.9%
- ---------------------------------------------------------------------------------------------------------------------------
TABLE II. COMBINED EFFECT OF FEDERAL AND NEW YORK STATE INCOME TAXES
Approx.
1996 To equal a tax-exempt yield of:
-----------------------------------------------------------------------------
Federal,
NYS &
NYC 4.50% 5.00%5.50% 6.00% 6.25% 6.50% 6.75% 7.00% 7.25% 7.50% 7.75% 8.00% 8.50%
-----------------------------------------------------------------------------
If your net taxable
income1 A taxable investment would have to pay you:3
is approximately2 Marginal
Joint Return Single Return Tax Rates5
- ---------------------------------------------------------------------------------------------------------------------------
$22,001-$40,100 $11,001-$24,000 21.06% 5.7% 6.3% 7.0% 7.6% 7.9% 8.2% 8.6% 8.8% 9.2% 9.5% 9.8% 10.1% 10.8%
- ---------------------------------------------------------------------------------------------------------------------------
$40,101-$96,900 $24,001-$58,150 33.13% 6.7% 7.5% 8.2% 9.0% 9.4% 9.7% 10.1% 10.5% 10.8% 11.2% 11.6% 12.0% 12.7%
- ---------------------------------------------------------------------------------------------------------------------------
$96,901-$147,700 $58,151-$121,300 35.92% 7.0% 7.8% 8.6% 9.4% 9.8% 10.1% 10.5% 11.0% 11.3% 11.7% 12.1% 12.5% 13.3%
- ---------------------------------------------------------------------------------------------------------------------------
$147,701-$263,750$121,301-$263,750 40.56% 7.6% 8.4% 9.3% 10.1% 10.5% 11.0% 11.4% 11.8% 12.2% 12.6% 13.0% 13.5% 14.3%
- ---------------------------------------------------------------------------------------------------------------------------
$263,751+ $263,751+ 43.90% 8.0% 8.9% 9.8% 10.7% 11.1% 11.6% 12.0% 12.5% 12.9% 13.4% 13.8% 14.3% 15.2%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 After exemptions and deductions other than state and local tax deductions.
2 The tables cover only a representative range of incomes, and income
brackets have been rounded off to facilitate illustration. Actual
Federal, New York State and New York City income brackets may differ
slightly from those in the table.
3 Yields on taxable investments have been rounded off to facilitate
illustration.
4 This rate is calculated by using the highest New York State and New York
City marginal tax rates that apply to the bracket. 5This rate is
calculated by using the highest New York State marginal tax rate that
applies to the bracket.
A-17
C/M: 10726.0065 332938.1
<PAGE>
[This page intentionally left blank]
A-18
C/M: 10726.0065 332938.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Prospectus Part B
Part B of this Prospectus may not be Distributed Unless Accompanied by Part A
THE TRUST
Organization
Empire State Municipal Exempt Trust (the "Fund"), Guaranteed Series 124
(the "Trust") is one of a series of similar but separate unit investment
trusts created under the laws of the State of New York by a Trust Indenture
and Agreement* (the "Trust Agreement"), dated the Date of Deposit, among
Glickenhaus & Co. and Lebenthal & Co., Inc. as sponsors (the "Sponsors"), The
Bank of New York, as trustee (the "Trustee"), and Muller Data Corporation, as
evaluator (the "Evaluator").
On the date of this Prospectus each Unit represented the fractional
undivided interest in the Trust set forth under "Summary of Essential
Financial Information" in Part A. Thereafter, if any Units of the Trust are
redeemed by the Trustee, the fractional undivided interest in the Trust
represented by each unredeemed Unit will increase, although the actual
interest in the Trust represented by each such Unit will remain essentially
the same. Units will remain outstanding until redeemed upon tender to the
Trustee by any Unit holder, which may include the Sponsors, or until the
termination of the Trust Agreement for the related Trust. See "Rights of Unit
Holders--Redemption" in this Part B.
Objectives
The objective of the Fund is to obtain tax-exempt interest income
through an investment in a fixed insured portfolio consisting primarily of
various long-term municipal bonds with average maturities of over 10 years. No
assurance can be given that the Fund's objectives will be achieved as these
objectives are subject to the continuing ability of the respective issuers of
the bonds to meet their obligations and, of the Insurer to meet its
obligations under the insurance. In addition, an investment in such portfolio
can be affected by fluctuations in interest rates.
Portfolio
The portfolio of the Trust consists of the Bonds described in "The
Portfolio" in Part A and are represented by the Sponsors' contracts to
purchase, which are expected to be settled by the date set forth in Part A.
The Trust may contain Bonds which have been purchased on a when, as, and if
issued basis. Accordingly, the delivery of such Bonds may be delayed or may
not occur. (See "The Portfolio" in Part A.) Interest on these Bonds begins
accruing to the benefit of Unit holders on their respective dates of delivery.
Unit holders will be "at risk" with respect to these Bonds (i.e., may derive
either gain or loss from fluctuations in the offering side evaluation of the
Bonds) from the date they
- --------
* References in this Prospectus to the Trust Agreement are qualified in their
entirety by the Trust Agreement which is incorporated herein by reference.
332948.1
<PAGE>
commit for Units. (See "The Portfolio" in Part A.) For a discussion of the
Sponsors' obligations in the event of the failure of any contract for the
purchase of any of the Bonds and limited right to substitute other bonds to
replace any failed contract, see "Substitution of Bonds" in this Part B. As a
result of the MBIA Insurance Corporation insurance, Moody's Investors Service
("Moody's") has assigned a rating of "Aaa" to all of the Bonds in the Trust,
as insured and Standard & Poor's Corporation ("Standard & Poor's") has
assigned a rating of "AAA" to the Units and Bonds while in the Trust. (See
"Insurance on the Bonds" in this Part B).
In view of the Fund's objectives, the following factors, among others,
were considered in selecting the Bonds: (1) All the Bonds are obligations of
the State of New York and counties, municipalities, authorities or political
subdivisions thereof or issued by certain United States territories or
possessions, including Puerto Rico, and their public authorities so that the
interest on them will be exempt from Federal, New York State and New York City
income tax under existing law; (2) the Bonds are varied as to purpose of
issue; (3) in the opinion of the Sponsors, the Bonds are fairly valued
relative to other bonds of comparable quality and maturity; and (4) MBIA
Insurance Corporation insurance for the payment of principal and interest on
the Securities is available. Subsequent to the Date of Deposit, a Bond may
cease to be rated or its rating may be reduced. Neither event requires an
elimination of such Bond from the portfolio, but such an event may be
considered in the Sponsors' determination to direct the Trustee to dispose of
the Bonds. See "Sponsors-Responsibility" in Part B. The insurance on the Bonds
in the portfolio obtained by the Trust does not cover such Bonds until they
are delivered to the Trust. See "The Trust--Portfolio--General Considerations"
in this Part B.
Special Factors Affecting New York
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 Sponsors
have not independently verified this information.
State Economic Trends. Over the long term, the State of New York (the
"State") and the City of New York (the "City") face serious potential 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. In recent years the
State's economic position has improved in a manner consistent with that for
the Northeast as a whole.
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.
B-2
332948.1
<PAGE>
Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.3 million,
is an international center of business and culture. Its non-manufacturing
economy is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total employment
earnings. Additionally, the City is the nation's leading tourist destination.
The City's manufacturing activity is conducted primarily in apparel and
publishing.
The national economic downturn which began in July 1990 adversely
affected the local economy, which had been declining since late 1989. As a
result, the City experienced job losses in 1990 and 1991 and real Gross City
Product (GCP) fell in those two years. For the 1992 fiscal year, the City
closed a projected budget gap of $3.3 billion in order to achieve a balanced
budget as required by the laws of the State. Beginning in calendar year 1992,
the improvement in the national economy helped stabilize conditions in the
City. Employment losses moderated toward year-end and real GCP increased,
boosted by strong wage gains. The City's current four-year financial plan
assumes that, after noticeable improvements in the City's economy during
calendar year 1994, economic growth will slow in calendar years 1995 and 1996
with local employment increasing modestly. During the 1995 fiscal year, the
City experienced substantial shortfalls in payments of non-property tax
revenues from those forecasted.
For each of the 1981 through 1994 fiscal years, the City achieved
balanced operating results as reported in accordance with generally accepted
accounting principles ("GAAP"), and the City's 1995 fiscal year results are
projected to be balanced in accordance with GAAP. The City was required to
close substantial budget gaps in recent years in order to maintain balanced
operating results. For fiscal year 1995, the City has adopted a budget which
has halted the trend in recent years of substantial increases in City spending
from one year to the next. There can be no assurance that the City will
continue to maintain a balanced budget as required by State law without
additional tax or other revenue increases or reductions in City services,
which could adversely affect the City's economic base.
Pursuant to the laws of the State, the City prepares an annual four-year
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City
is required to submit its financial plans to review bodies, including the New
York State Financial Control Board ("Control Board"). If the City were to
experience certain adverse financial circumstances, including the occurrence
or the substantial likelihood and imminence of the occurrence of an annual
operating deficit of more than $100 million or the loss of access to the
public credit markets to satisfy the City's capital and seasonal financing
requirements, the Control Board would be required by State law to exercise
powers, among others, of prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid 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 or that State budgets in future fiscal years will
be adopted by the April 1 statutory deadline and that such reductions or
delays will not have adverse effects on the City's cash flow or expenditures.
The Mayor is responsible for preparing the City's four-year financial
plan, including the City's current financial plan for the 1996 through 1999
fiscal years (the "1996-1999 Financial Plan" or "Financial Plan"). The City's
B-3
332948.1
<PAGE>
projections set forth in the Financial Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. Changes
in major assumptions could significantly affect the City's ability to balance
its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the
condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees
consistent with those assumed in the Financial Plan, employment growth, the
results of a pending actuarial audit of the City's pension system which is
expected to significantly increase the City's annual pension costs, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, which may require in certain cases the cooperation of
the City's municipal unions, revenue generating transactions and provision of
State and Federal aid and mandate relief.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets.
The City's financing program for fiscal years 1996 through 1999 contemplates
the issuance of $9.7 billion of general obligation bonds primarily to
reconstruct and rehabilitate the City's infrastructure and physical assets and
to make other capital investments. 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 will be subject
to prevailing market conditions, and no assurance can be given that such sales
will be completed. If the City were unable to sell its general obligation
bonds and notes, it would be prevented from meeting its planned capital and
operating expenditures.
The City submitted to the Control Board on July 21, 1995 a fourth
quarter modification to the City's financial plan for the 1995 fiscal year,
which projects a balanced budget in accordance with GAAP for the 1995 fiscal
year, after taking into account a discretionary transfer of $75 million. On
July 11, 1995, the City submitted to the Control Board the Financial Plan for
the 1996 through 1999 fiscal years, which relates to the City, the Board of
Education ("BOE") and the City University of New York ("CUNY"). The Financial
Plan is based on the City's expense and capital budgets for the City's 1996
fiscal year, which were adopted on June 14, 1995, and sets forth proposed
actions by the City for the 1996 fiscal year to close substantial projected
budget gaps resulting from lower than projected tax receipts and other
revenues and greater than projected expenditures. In addition to substantial
proposed agency expenditure reductions and productivity, efficiency and labor
initiatives negotiated with the City's labor unions, the Financial Plan
reflects a strategy to substantially reduce spending for entitlements for the
1996 and subsequent fiscal years.
The 1996-1999 Financial Plan projects revenues and expenditures for the
1996 fiscal year balanced in accordance with GAAP. The projections for the
1996 fiscal year reflect proposed actions to close a previously projected gap
of approximately $3.1 billion for the 1996 fiscal year. The proposed actions
in the Financial Plan for the 1996 fiscal year include (i) a reduction in
spending of $400 million, primarily affecting public assistance and Medicaid
payments by the City; (ii) expenditure reductions in agencies, totalling $1.2
billion; (iii) transitional labor savings, totalling $600 million; and (iv)
the phase-in of the increased annual pension funding cost due to revisions
resulting from an actuarial audit of the City pension systems, which would
reduce such costs in the 1996 fiscal year. Other proposed actions include (i)
welfare savings of $100 million from increased fraud detection; (ii) $170
million of additional expenditure reductions in agencies and HHC; (iii) a
delay in the proposed reduction in the commercial rent tax, which would
increase projected revenues by $62 million in the 1996 fiscal year; (iv) an
increase of $75 million in projected tax collections for the 1996 fiscal year;
(v) $50 million of proposed additional State aid not included in the adopted
State budget and $75 million of proposed additional Federal aid; (vi) certain
revenue initiatives, including the proposed sale of delinquent tax liens and
the U.N. Plaza Hotel for $104 million; and (vii) savings from the proposed
refunding of outstanding debt, totalling $50 million.
B-4
332948.1
<PAGE>
The proposed agency spending reductions include the reduction of City
personnel through attrition, government efficiency initiatives, procurement
initiatives and labor productivity initiatives. The substantial agency
expenditure reductions proposed in the Financial Plan may be difficult to
implement, and the Financial Plan is subject to the ability of the City to
implement proposed reductions in City personnel and other cost reduction
initiatives. In addition, certain initiatives are subject to negotiation with
the City's municipal unions, and various actions, including proposed
anticipated State aid totalling $50 million are subject to approval by the
Governor and State Legislature.
The City annually prepares a modification to its financial plan in
October or November which amends the financial plan to accommodate any
revisions to forecast revenues and expenditures and to specify any additional
gap-closing initiatives to the extent required to offset decreases in
projected revenues or increases in projected expenditures (the "First Quarter
Modification"). Subsequent to the preparation of the Financial Plan, the City
has agreed to pay for a portion of the cost of student transit passes, which
will result in a $45 million increase in expenditures for the 1996 fiscal
year. In addition, the City is in the process of identifying any additional
spending requirements or revenue losses affecting the 1996 fiscal year. In
October or November, 1995, the Mayor is expected to publish the First Quarter
Modification for the 1996 fiscal year.
The Financial Plan also sets forth projections for the 1997 through 1999
fiscal years and outlines a proposed gap-closing program to eliminate
projected gaps of $888 million, $1.5 billion and $1.4 billion for the 1997,
1998 and 1999 fiscal years, respectively, after successful implementation of
the $3.1 billion gap-closing program for the 1996 fiscal year.
The projections for the 1996 through 1999 fiscal years assume (i)
agreement with the City's unions with respect to approximately $100 million of
savings to be derived from efficiencies in management of employee health
insurance programs and other health benefit related savings for each of the
1996 through 1999 fiscal years to be negotiated with the City's unions; (ii)
$200 million of additional anticipated State aid and $75 million of additional
anticipated Federal aid in each of the 1997 through 1999 fiscal years; (iii)
that HHC and BOE will each be able to identify actions to offset substantial
revenue shortfalls reflected in the Financial Plan, including approximately
$254 million annual reduction in revenues for HHC, which results from the
reduction in Medicaid payments proposed by the State and the City, without any
increase in City subsidy payments to HHC; (iv) the continuation of the current
assumption of no wage increases after fiscal year 1995 for City employees
unless offset by productivity increases; (v) $130 million of additional
revenues as a result of increased rent payments for the City's airports
proposed by the City, which is subject to further discussion with the Port
Authority; and (vi) savings of $45 million in each of the 1997 through 1999
fiscal years which would result from the State Legislature's enactment of
proposed tort reform legislation. In addition, the 1996-1999 Financial Plan
anticipates the receipt of substantial amounts of Federal aid. Certain Federal
legislative proposals contemplate significant reductions in Federal spending,
including proposed Federal welfare reform, which could result in caps on, or
block grants of, Federal programs.
The proposed gap-closing actions, a substantial number of which are not
specified in detail, include additional agency expenditure reductions,
primarily resulting from a partial hiring freeze, totalling between $388
million and $684 million in each of the 1997 through 1999 fiscal years;
reductions in expenditures resulting from proposed procurement initiatives
totalling between $50 million and $100 million in each of the 1997 through
1999 fiscal years; revenue initiatives totalling between $100 million and $200
million in each of the 1997 through 1999 fiscal years; the availability in
each of the 1997, 1998 and 1999 fiscal years of $100 million of the general
reserve appropriated in the prior year; and additional reduced expenditures
resulting from further revisions in entitlement programs to reduce City
expenditures by $250 million, $400 million and $400 million in the 1997, 1998
and 1999 fiscal years, respectively, which may be subject to State or Federal
approval.
B-5
332948.1
<PAGE>
On July 10, 1995, Standard & Poor's revised downward its rating on City
general obligation bonds from A-to BBB+ and removed City bonds from
CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief,
a history of cash flow difficulties caused by State budget delays and
continued high debt levels. Fitch Investors Service, Inc. continues to rate
the City general obligation bonds A-.
Moody's rating for City general obligation bonds is Baa1.
In January 1993, the City announced a settlement with a coalition of 19
municipal unions for a 39-month period that extends into fiscal year 1995. The
settlement resulted in a total net expenditure increase of 8.25% of covered
employee payroll over a 39-month period, ending March 31, 1995, for most of
these employees. Subsequently, the City reached agreement with all of its
major bargaining units on terms which are generally consistent with the
coalition agreement.
Contracts with all of the City's municipal unions either expired in the
1995 fiscal year or will expire in the 1996 fiscal year. The Financial Plan
provides no additional wage increases for City employees after the 1995 fiscal
year. Each 1% wage increase for all union contracts commencing in the 1995 or
1996 fiscal year would cost the City an additional $141 million for the 1996
fiscal year and $161 million each year thereafter above the amounts provided
for in the Financial Plan. The terms of wage settlements could be determined
through the impasse procedure in the New York City Collective Bargaining Law,
which can impose a binding settlement.
The projections and assumptions contained in the 1996-1999 Financial
Plan are subject to revision which may involve substantial change, and no
assurance can be given that these estimates and projections, which include
actions which the City expects will be taken but which are not within the
City's control, will be realized.
From time to time, the Control Board staff, the Municipal Assistance
Corporation for the City of New York ("MAC"), Office of the State Deputy
Comptroller ("OSDC"), the City Comptroller and others issue reports and make
public statements regarding the City's financial condition, commenting on,
among other matters, the City's financial plans, projected revenues and
expenditures and actions by the City to eliminate projected operating
deficits. Some of these reports and statements have warned that the City may
have underestimated certain expenditures and overestimated certain revenues
and have suggested that the City may not have adequately provided for future
contingencies. Certain of these reports have analyzed the City's future
economic and social conditions and have questioned whether the City has the
capacity to generate sufficient revenues in the future to meet the costs of
its expenditure increases and to provide necessary services. It is reasonable
to expect that such reports and statements will continue to be issued and to
engender public comment.
On July 24, 1995, the City Comptroller issued a report on the Financial
Plan. The report concluded that the Financial Plan includes total risks of
$749 million to $1.034 billion for the 1996 fiscal year. These risks include
(i) possible tax revenue shortfalls of $53 million; (ii) a possible $20
million to $60 million shortfall in savings resulting from unspecified
improvements in the City's health benefits system; (iii) a potential shortfall
of up to $40 million in projected savings from an early retirement program;
(iv) the receipt of $125 million of unspecified additional Federal and State
assistance; (v) up to $203 million of projected savings from the public
assistance eligibility review and electronic signature program for public
assistance recipients; (vi) $93 million of greater than projected expenditures
for overtime; (vii) $284 million of greater than projected expenditures and
lower than projected revenues at BOE; and
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332948.1
<PAGE>
(viii) the receipt of $130 million of lease payments from the Port Authority.
Other potential uncertainties identified in the report include the projected
$253.6 million deficit for the Health and Hospitals Corporation ("HHC"), $160
million of the $600 million in labor savings for the 1996 fiscal year which
are yet to be identified, and the impact on the City of a possible reduction
in Federal entitlement programs. Subsequently, the City Comptroller stated
that an additional $129 million of anticipated State and Federal assistance
for BOE might not be received by BOE.
With respect to the 1997 through 1999 fiscal years, the report noted
that the gap-closing program in the Financial Plan does not include
information about how the City will implement the various gap-closing
programs, and that the entitlement cost containment and revenue initiates will
require approval of the State legislature. Taking into account the same
categories of risks for the 1997 through 1999 fiscal years as the report
identified for the 1996 fiscal year and the uncertainty concerning the
gap-closing program, the report estimated that the Financial Plan includes
total risks of $2.0 billion to $2.5 billion in the 1997 fiscal year, $2.8
billion to $3.3 billion in the 1998 fiscal year and $2.9 billion to $3.4
billion in the 1999 fiscal year. The report further noted that the City
Comptroller continues to oppose the proposed sale of the water system,
primarily because of the unwillingness of the City to guarantee that $1
billion from the $2.3 billion in proceeds of the sale will be used only to
fund capital and not operating expenses, and concerns about the jurisdiction
and composition of the Water Board once title to the Water Board has been
transferred.
In early December, 1994, the City Comptroller issued a report which
noted that the City is currently seeking to develop and implement plans which
will satisfy the Federal Environmental Protection Agency that the water
supplied by the City watershed areas does not need to be filtered. The City
Comptroller noted that, if the City is ordered to build filtration plants,
they could cost as much as $4.57 billion to construct, with annual debt
service and operating costs of more than $500 million, leading to a water rate
increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting that
the capacity of the City to issue general obligation debt could be greatly
reduced in future years due to the decline in value of taxable real property.
The report noted that, under the State constitution, the City is permitted to
issue debt in an amount not greater than 10% of the average full value of
taxable real estate for the current year and preceding four years, that the
latest estimates produced by the State Board of Equalization and Assessment
relating to the full value of real property, using data from a 1992 survey,
indicate a 19% decline in the market value of taxable real property from the
previous survey in 1990, and that the State Board has decided to use a
projected annual growth rate of 8.84%, as compared to its previous projection
of 14% for estimating full value after 1992. The report concludes that the
City will be within the projected legal debt incurring limit in the 1996
fiscal year. However, the report concluded that, based on the most likely
forecast of full value of real property, the debt incurring power of the City
would be curtailed in the 1997 and 1998 fiscal years substantially. The City
Comptroller recommended, among other things, prioritization of capital
projects to determine which can be delayed or cancelled, and better
maintenance of the City's physical plant and infrastructure, which would
result in less capital spending for repair and replacement of capital
structures.
On July 21, 1995, the staff of the Control Board issued a report on the
Financial Plan which identified risks of $873 million, $2.1 billion, $2.8
billion and $2.8 billion for the 1996 through 1999 fiscal years, respectively.
With respect to the 1996 fiscal year, the principal risks included (i)
possible shortfalls in projected tax revenues totaling $50 million, (ii) the
possibility that revenue actions and expenditure reduction initiatives for BOE
totaling $266 million might not be successfully implemented, (iii) possible
shortfalls totaling $172 million in proposed welfare savings from increased
fraud detection, and (iv) uncertainty concerning the $50 million of proposed
additional State aid and $75 million of proposed additional Federal aid, the
proposed receipt of $130 million of increased rent payments for the City's
airports and the $100 million of savings to be derived from health
benefit-related savings, which are subject to negotiations with or approvals
by other parties. Additional risks identified for the 1997 through 1999 fiscal
years
B-7
332948.1
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include the possibility of additional tax revenue shortfalls, uncertainty
concerning the ability of the City to implement the gap-closing actions for
such years and uncertainty concerning the projected receipt of additional
anticipated State aid. Other areas of concern identified in the report
included the projected deficit at HHC of approximately $400 million,
reflecting the impact on HHC of the entitlement reductions contained in the
State budget and the City's reduction in the subsidy provided to HHC, and the
assumption in the Financial Plan that the City will realize the full $400
million of projected savings in public assistance and Medicaid payments
enacted at the State level. The report noted that substantially more
information is needed concerning the proposed gap-closing actions for the
1997-1999 fiscal years.
On June 14, 1995, the staff of the OSDC issued a report on the Financial
Plan with respect to the 1995 fiscal year. The report noted that, during the
1995 fiscal year, the City faced adverse financial developments totaling over
$2 billion resulting from the inability to initiate approximately 35% of the
City's gap-closing program, as well as newly-identified spending needs and
revenue shortfalls resulting from the adverse impact on the City's personal
income, general corporation and other tax revenues of the policy of the
Federal Reserve of increasing short-term interest rates and the related
downturn in the bond market and profits and bonus income on Wall Street. The
report noted that the City relied heavily on one-time actions to offset these
adverse developments, using $2 billion in one-time resources in the 1995
fiscal year, or nearly double the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the Financial
Plan. The report concluded that there remains a budget gap for the 1996 fiscal
year of $392 million, largely because the City and its unions have yet to
reach an agreement on how to achieve $160 million in unspecified labor savings
and the remaining $100 million in recurring health insurance savings from last
year's agreement. The report also identified a number of issues that present a
net potential risk of $409 million to the City's revenue and expenditure
forecasts for the 1996 fiscal year, including risks of (i) $160 million
associated with anticipated increases in Federal and State assistance, (ii)
$130 million relating to projected Port Authority airport lease payments, and
(iii) $100 million with respect to unfunded BOE mandates. The report also
identified several other concerns regarding the 1996 fiscal year, including
concerns that (i) detailed programs have not yet been fully developed to meet
the $564 million and $400 million cost-reduction targets established for BOE
and HHC, respectively, (ii) State and City initiatives to reduce public
assistance and Medicaid costs, which are expected to reduce City costs by $745
million in the 1996 fiscal year, will require close monitoring to ensure that
financial targets are met; (iii) the City has not provided sufficient
assurances that the bond proceeds from its proposed sale of the water and
sewer system would be used strictly for capital spending purposes; and (iv)
the Financial Plan makes no provision for wage increases in the collective
bargaining agreements between the City and its unions, which generally will
expire by October, 1995. The report further noted that growth in City revenues
is being constrained by the weak economy in the City, which is likely to be
compounded by the slowing national economy, and that there is a likelihood of
a national recession during the course of the Financial Plan. Moreover, the
report noted that State and Federal budgets are undergoing tumultuous changes,
and that the potential for far-reaching reductions in intergovernmental
assistance is clearly on the horizon, with greater uncertainty about the
impact on City finances and services.
A substantial portion of the capital improvements in the City are
financed by indebtedness issued by MAC. MAC was organized in 1975 to provide
financing assistance for the City and also to exercise certain review
functions with respect to the City's finances. MAC bonds are payable out of
certain State sales and compensating use taxes imposed within the City, State
stock transfer taxes and per capita State aid to the City. Any balance from
these sources after meeting MAC debt service and reserve fund requirements and
paying MAC's operating expenses is remitted to the City or, in the case of the
stock transfer taxes, rebated to the taxpayers. The State is not, however,
obligated to continue the imposition of such taxes or to continue
appropriation of the revenues therefrom to MAC, nor is the State
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obligated to continue to appropriate the State per capita aid to the City
which would be required to pay the debt service on certain MAC obligations.
MAC has no taxing power and MAC bonds do not create an enforceable obligation
of either the State or the City. As of June 30, 1995, MAC had outstanding an
aggregate of approximately $4.882 billion of its bonds.
New York State and its Authorities. The State's current fiscal year
commenced on April 1, 1995, and ends on March 31, 1996, and is referred to
herein as the State's 1995-96 fiscal year. The prior fiscal year, which ended
on March 31, 1995, is referred to herein as the State's 1994-95 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the Legislature
on June 7, 1995, more than two months after the start of the fiscal year.
Prior to adoption of the budget, the Legislature enacted appropriations for
disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year was formulated on June 20, 1995 and
is based on the State's budget as enacted by the Legislature and signed into
law by the Governor.
The 1995-96 budget is the first to be enacted in the administration of
the Governor, who assumed office on January 1. It is the first budget in over
half a century which proposed and, as enacted, projects an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (i.e., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in
contrast to the prior decade when such spending growth averaged more than 6.0
percent annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of unfunded
1994-95 initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts, to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million
to the then projected imbalance or budget gap, bringing the total to
approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care program; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, State University of New York ("SUNY") and
City University of New York ("CUNY"), mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in
revenue measures, primarily a new Quick Draw Lottery game, changes to tax
payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
There are risks and uncertainties concerning the future-year impact of
tax reductions and other measures in 1995-96 budget.
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The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can
be very complex, may vary from fiscal year to fiscal year, and are frequently
the result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. For example, various proposals
relating to Federal tax and spending policies that are currently being
publicly discussed and debated could, if enacted, have a significant impact on
the State's financial condition in the current and future fiscal years.
Because of the uncertainty and unpredictability of the changes, their impact
cannot, as a practical matter, be included in the assumptions underlying the
State's projections at this time.
The State Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, Federal fiscal and monetary
policies, the level of interest rates, and the condition of the world economy,
which could have an adverse effect on the State. There can be no assurance
that the State economy will not experience results in the current fiscal year
that are worse than predicted, with corresponding material and adverse effects
on the State's projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are
based on the State tax structure in effect during the fiscal year and on
assumptions relating to basic economic factors and their historical
relationships to State tax receipts. In preparing projections of State
receipts, economic forecasts relating to personal income, wages and employment
have been particularly important. The projection of receipts from most tax or
revenue sources is generally made by estimating the change in yield of such
tax or revenue source caused by economic and other factors, rather than by
estimating the total yield of such tax or revenue source from its estimated
tax base. The forecasting methodology, however, ensures that State fiscal year
estimates for taxes that are based on a computation of annual liability, such
as the business and personal income taxes, are consistent with estimates of
total liability under such taxes.
Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations.
Factors that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the
policies of the Federal government, and changes in the demand for and use of
State services.
The State Division of the Budget ("DOB") believes that its projections
of receipts and disbursements relating to the current State Financial Plan,
and the assumptions on which they are based, are reasonable. Actual results,
however, could differ materially and adversely from the projections set forth
below, and those projections may be changed materially and adversely from time
to time.
The national economy began the current expansion in 1991 and has added
over 7 million jobs since early 1992. However, the recession lasted longer in
the State and the State's economic recovery has lagged behind the nation's.
Although the State has added approximately 185,000 jobs since November 1992,
employment growth in the State has been hindered during recent years by
significant cutbacks in the computer and instrument manufacturing, utility,
defense, and banking industries.
The State Financial Plan is based on a projection by DOB of national and
State economic activity. DOB forecasts that national economic growth will
weaken, but not turn negative, during the course of 1995 before beginning
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to rebound by the end of the year. This dynamic is often described as a "soft
landing". The overall rate of growth of the national economy during calendar
year 1995 will be slightly below the "consensus" of a widely followed survey
of national economic forecasters. Growth in the real gross domestic product
during 1995 is projected to be moderate (3.0 percent), with declines in
defense spending and net exports more than offset by increases in consumption
and investment. Continuing efforts by business and government to reduce costs
are expected to exert a drag on economic growth. Inflation, as measured by the
Consumer Price Index, is projected to remain about 3 percent due to moderate
wage growth and foreign competition. Personal income and wages are projected
to increase by about 6 percent or more.
New York's economy is expected to continue to expand modestly during
1995, but there will be a pronounced slow-down during the course of the year.
Although industries that export goods and services abroad are expected to
benefit from the lower dollar, growth will be slowed by government cutbacks at
all levels. On an average annual basis, employment growth will be about the
same as 1994. Both personal income and wages are expected to record moderate
gains in 1995. Bonus payments in the securities industry are expected to
increase from last year's depressed level.
As noted above, the financial condition of the State is affected by
several factors, including the strength of the State and regional economy and
actions of the Federal government, as well as State actions affecting the
level of receipts and disbursements. Owing to these and other factors, the
State may, in future years, face substantial potential budget gaps resulting
from a significant disparity between tax revenues projected from a lower
recurring receipts base and the future costs of maintaining State programs at
current levels. Any such recurring imbalance would be exacerbated if the State
were to use a significant amount of nonrecurring resources to balance the
budget in a particular fiscal year. To address a potential imbalance for a
given fiscal year, the State would be required to take actions to increase
receipts and/or reduce disbursements as it enacts the budget for that year,
and under the State Constitution the Governor is required to propose a
balanced budget each year. To correct recurring budgetary imbalances, the
State would need to take significant actions to align recurring receipts and
disbursements in future fiscal years. There can be no assurance, however, that
the State's actions will be sufficient to preserve budgetary balance in a
given fiscal year or to align recurring receipts and disbursements in future
fiscal years.
The General Fund is the general operating fund of the State and is used
to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1995-96 fiscal year, the General Fund is expected to
account for approximately 49 percent of total governmental-fund receipts and
51 percent of total governmental-fund disbursements. General Fund moneys are
also transferred to other funds, primarily to support certain capital projects
and debt service payments in other fund types.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or
increasing the level of support for State programs. The 1995-96 enacted budget
combines significant tax and program reductions which will, in the current and
future years, lower both the recurring receipts base (before the effect of any
economic stimulus from such tax reductions) and the historical annual growth
in State program spending. The three-year plan to reduce State personal income
taxes will decrease State tax receipts by an estimated $1.7 billion in State
fiscal year 1996-97 in addition to the amount of reduction in State fiscal
year 1995-96. Further significant reductions in the personal income tax are
scheduled for the 1997-98 State fiscal year. Other tax reductions enacted in
1994 and 1995 are estimated to cause an additional reduction in receipts of
over $500 million in 1996-97, as compared to the level of receipts in 1995-96.
Similarly, many actions taken to reduce disbursements in the State's
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1995-96 fiscal year are expected to provide greater reductions in State fiscal
year 1996-97. These include actions to reduce the State workforce, reduce
Medicaid and welfare expenditures and slow community mental hygiene program
development. The net impact of these and other factors is expected to produce
a potential imbalance in receipts and disbursements in State fiscal year
1996-97. The Governor has indicated that in the 1996-97 Executive Budget he
will propose to close this potential imbalance primarily through General Fund
expenditure reductions and without increases in taxes or deferrals of
scheduled tax reductions. On October 2, 1995, the State Comptroller released a
report in which he reaffirmed his estimate that the State will face a budget
gap of at least $2.7 billion for the 1996-97 fiscal year and a projected gap
of at least $3.9 billion for the 1997-98 fiscal year.
On January 13, 1992, Standard & Poor's reduced its ratings on the
State's general obligation bonds from A to A-and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. Standard & Poor's also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
Standard & Poor's revised the rating outlook assessment to stable. On February
14, 1994, Standard & Poor's raised its outlook to positive and, on July 13,
1995, confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings
on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On July 3, 1995, Moody's reconfirmed its A rating
on the State's general obligation long-term indebtedness.
The fiscal stability of the State is related to the fiscal stability of
its authorities, which generally have responsibility for financing,
constructing and operating revenue-producing public benefit facilities. The
authorities are not subject to the constitutional restrictions on the
incurrence of debt which apply to the State itself and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1994, there were 18 authorities that had
outstanding debt of $100 million or more, and the aggregate outstanding debt,
including refunding bonds, of these 18 authorities was $70.3 billion. As of
March 31, 1995, aggregate public authority debt outstanding as State-supported
debt was $27.9 billion and as State-related debt was $36.1 billion.
There are statutory arrangements providing for State local assistance
payments, otherwise payable to localities, to be made under certain
circumstances to public authorities. Although the State has no obligation to
provide additional assistance to localities whose local assistance payments
have been paid to public authorities under these arrangements if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.
The Metropolitan Transit Authority ("MTA"), a State agency, oversees the
operation of the City's subway and bus system by its affiliates, the New York
City Transit Authority and Bronx Surface Transit Operating Authority (the
"Transit Authority" or "TA") and commuter rail and bus lines serving the New
York metropolitan area. Fare revenues from such operations have been
insufficient to meet expenditures, and the MTA depends heavily upon a system
of State, local, Triborough Bridge and Tunnel Authority ("TBTA") and, to the
extent available, Federal support. Over the past several years, the State has
enacted several taxes, including a surcharge on the profits of banks,
insurance corporations and general business corporations doing business in the
12 county region served by the MTA and a special one-quarter of 1% regional
sales and use tax, that provide additional revenues for mass transit purposes
including assistance to the MTA. For the 1995-96 State fiscal year, total
State assistance to the MTA is estimated at approximately $1.1 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96
Capital Program based on this legislation from the MTA Capital Program Review
Board, as State law requires. This is the third five-year plan since the
Legislature authorized procedures for the adoption, approval and amendment of
a five-year plan for 1981 for a capital program designed to upgrade the
performance of the MTA's transportation systems
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and to supplement, replace and rehabilitate facilities and equipment. The MTA,
the TBTA and the TA are collectively authorized to issue an aggregate of $3.1
billion of bonds (net of certain statutory exclusions) to finance a portion of
the 1992-96 Capital Program. the 1992-96 Capital Program was expected to be
financed in significant part through dedication of the State petroleum
business tax receipts. However, in December 1994 the proposed bond resolution
based on such tax receipts was not approved by the MTA Capital Program Review
Board. Further consideration of the resolution was deferred until 1995.
There can be no assurance that all the necessary governmental actions
for the MTA 1992-96 Capital Program or future capital programs will be taken,
that funding sources currently identified will not be decreased or eliminated,
or that the MTA 1992-96 Capital Program, or parts thereof, will not be delayed
or reduced. If the MTA Capital Program is delayed or reduced, ridership and
far revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional assistance.
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. Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced
1995-96 State Financial Plan. The State believes that the 1995-96 State
Financial Plan includes sufficient reserves for the payment of judgments that
may be required during the 1995-96 fiscal year. There can be no assurance,
however, that an adverse decision in any of these proceedings would not exceed
the amount of the 1995- 96 State Financial Plan reserves for the payment of
judgments and, therefore, could affect the ability of the State to maintain a
balanced 1995-96 State Financial Plan.
General Considerations
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with their
terms and the proceeds from such events will be distributed to Unit holders
and will not be reinvested, no assurance can be given that the Trust will
retain for any length of time its present size and composition. Except as
described in footnotes to "Summary of Essential Financial Information" for the
Trust interest accrues to the benefit of Unit holders commencing with the
expected date of settlement for purchase of the Units. If a Replacement Bond
is not acquired, accrued interest (at the coupon rate of the Failed Bonds or
earned original issue discount in the case of original issue discount and zero
coupon Bonds) will be paid to Unit holders (from the Deposit Date to the date
the Trustee is notified of the failure of the Sponsors to purchase a
Replacement Bond). All such interest paid to Unit holders which accrued after
the date of settlement for a purchase of Units will be paid by the Sponsors
and accordingly will not be treated as tax-exempt income. In the event a
Replacement Bond is not acquired by the Trust, the net annual interest income
per Unit for the Trust would be reduced and the estimated current return might
be lowered.
Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any Security. In the event that any contract for
the purchase of Securities in the Trust fails and no Replacement Bond as
hereinafter defined is acquired, the Sponsors shall refund to all Unit holders
the sales charge attributable to such failed contract, and the principal and
accrued interest (at the coupon rate of the relevant Security or earned
original issue discount in the case of original issue discount and zero coupon
Bonds to the date the Sponsors are notified of the failure) which are
attributable to such failed contract, shall be distributed at the next Monthly
Payment Date which is more than 30 days after the failure to purchase
Replacement Bonds. The portion of such interest paid to a Unit holder
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which accrued after the expected date of settlement for purchase of his Units
will be paid by the Sponsors and accordingly will not be treated as tax-exempt
income.
The following paragraphs discuss the characteristics of the Bonds in the
Trust and of certain types of issuers of the Bonds in the Trust. These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payment of principal of
and interest on Bonds held in the portfolio of the Trust or which may
adversely affect the ratings of such Bonds. Because of the insurance obtained
by the Sponsors or by the issuers for the Trust, however, such changes should
not adversely affect the Trust's ultimate receipt of principal and interest,
the Standard & Poor's or Moody's ratings of the Bonds in the portfolio, or the
Standard & Poor's rating of the Units of the Trust. An investment in Units of
the Trust should be made with an understanding of the risks that such an
investment may entail, certain of which are described below. Unit holders may
obtain additional information concerning a particular Bond by requesting an
official statement from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest. The
taxing power of any governmental entity may be limited, however, by provisions
of state constitutions or laws, and an entity's credit will depend on many
factors, including potential erosion of the tax base due to population
declines, natural disasters, declines in the state's industrial base or
inability to attract new industries; economic limits on the ability to tax
without eroding the tax base; state legislative proposals or voter initiatives
to limit ad valorem real property taxes; and the extent to which the entity
relies on Federal or state aid, access to capital markets or other factors
beyond the state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease purchase
obligations as a means for financing the acquisition of capital projects
(e.g., buildings or equipment, among other things). Such obligations are often
made subject to annual appropriations. Certain Bonds in the Trust may be Bonds
that are, in whole or in part, subject to and dependent upon (i) the
governmental entity making appropriations from time to time or (ii) the
continued existence of special temporary taxes which require legislative
action for their reimposition. The availability of any appropriation is
subject to the willingness of the governmental entity to continue to make such
special appropriations or to reimpose such special taxes. The obligation to
make lease payments exists only to the extent of the monies available to the
governmental entity therefor, and no liability is incurred by the governmental
entity beyond the monies so appropriated. Subject to the foregoing, once an
annual appropriation is made, the governmental entity's obligation to make
lease rental payments is absolute and unconditional without setoff or
counterclaim, regardless of contingencies, whether or not a given project is
completed or used by the governmental entity and notwithstanding any
circumstances or occurrences which might arise. In the event of
non-appropriation, certificateholders' or bondowners' sole remedy (absent
credit enhancement) generally is limited to repossession of the collateral for
resale or releasing, and the obligation of the governmental lessee is not
backed by a pledge of the general credit of the governmental lessee. In the
event of non-appropriation, the Sponsors may instruct the Trustee to sell such
Bonds.
Moral Obligation Bonds. Certain of the Bonds in the Trust may be secured
by pledged revenues and additionally by the so-called "moral obligations" of
the State or a local governmental body. Should the pledged revenues prove
insufficient, the payment of such Bonds is not a legal obligation of the State
or local government, and is subject to its willingness to appropriate funds
therefor.
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Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue bonds."
Under the Internal Revenue Code of 1986, as amended (the "Code"), (and under
similar provisions of the prior tax law) "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied
residences under programs which meet numerous statutory requirements relating
to residency, ownership, purchase price and target area requirements, ceiling
amounts for state and local issuers, arbitrage restrictions, and certain
information reporting, certification, and public hearing requirements. There
can be no assurance that additional federal legislation will not be introduced
or that existing legislation will not be further amended, revised, or enacted
after delivery of these Bonds or that certain required future actions will be
taken by the issuing governmental authorities, which action or failure to act
could cause interest on the Bonds to be subject to federal income tax. If any
portion of the Bonds proceeds are not committed for the purpose of the issue,
Bonds in such amount could be subject to earlier mandatory redemption at par,
including issues of Zero Coupon Bonds (see "Original Issue Discount and Zero
Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds of the
Trust may consist of obligations of state and local housing authorities whose
revenues are primarily derived from mortgage loans to housing projects for low
to moderate income families. Since such obligations are not general
obligations of a particular state or municipality and are generally payable
primarily or solely from rents and other fees, adverse economic developments
including failure or inability to increase rentals, fluctuations of interest
rates and increasing construction and operating costs may reduce revenues
available to pay existing obligations.
The housing bonds in the Trust, despite their optional redemption
provisions which generally do not take effect until ten years after the
original issuance dates of such Bonds (often referred to as "ten year call
protection"), do contain provisions which require the issuer to redeem such
obligations at par from unused proceeds of the issue within a stated period.
In recent periods of declining interest rates there have been increased
redemptions of housing bonds pursuant to such redemption provisions. In
addition, the housing bonds in the Trust are also subject to mandatory
redemption in part at par at any time that voluntary or involuntary
prepayments of principal on the underlying mortgages are made to the trustee
for such Bonds or that the mortgages are sold by the bond issuer. Prepayments
of principal tend to be greater in periods of declining interest rates; it is
possible that such prepayments could be sufficient to cause a housing bond to
be redeemed substantially prior to its stated maturity date, earliest call
date or sinking fund redemption date.
Public Power Revenue Bonds. General problems of the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and
operation of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials
and the disposal of radioactive waste; and the effects of energy conservation.
Certain Bonds may have been issued in connection with the financing of nuclear
generating facilities. In view of recent developments in connection with such
facilities, legislative and administrative actions have been taken and
proposed relating to the development and operation of nuclear generating
facilities. The Sponsors are unable to predict whether any such actions or
whether any such proposals or litigation, if enacted or instituted, will have
an adverse impact on the revenues available to pay the debt service on the
Bonds in the portfolio issued to finance such nuclear projects.
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Each of the problems referred to above could adversely affect the
ability of the issuers of public power revenue bonds to make payments of
principal of and/or interest on such bonds. Certain municipal utilities or
agencies may have entered into contractual arrangements with investor-owned
utilities and large industrial users and consequently may be dependent in
varying degrees on the performance of such contracts for payment of bond debt
service.
Health Care Revenue Bonds. Some of the aggregate principal amount of
Bonds of the Trust may consist of hospital revenue bonds. Ratings of hospital
bonds are often initially based on feasibility studies which contain
projections of occupancy levels, revenues and expenses. Actual experience may
vary considerably from such projections. A hospital's gross receipts and net
income will be affected by future events and conditions including, among other
things, demand for hospital services and the ability of the hospital to
provide them, physicians' confidence in hospital management capability,
economic developments in the service area, competition, actions by insurers
and governmental agencies and the increased cost and possible unavailability
of malpractice insurance. Additionally, a major portion of hospital revenue
typically is derived from federal or state programs such as Medicare and
Medicaid which have been revised substantially in recent years and which are
undergoing further review at the state and federal level.
Proposals for significant changes in the health care system and the
present programs for third party payment of health care costs are under
consideration in Congress and many states. Future legislation or changes in
the areas noted above, among other things, would affect all hospitals to
varying degrees and, accordingly, any adverse change in these areas may affect
the ability of such issuers to make payment of principal and interest on such
bonds.
Higher Education Revenue Bonds. Higher education revenue bonds include
debt of state and private colleges, universities and systems, and parental and
student loan obligations. The ability of universities and colleges to meet
their obligations is dependent upon various factors, including the revenues,
costs and enrollment levels of the institutions. In addition, their ability
may be affected by declines in Federal, state and alumni financial support,
fluctuations in interest rates and construction costs, increased maintenance
and energy costs, failure or inability to raise tuition or room charges and
adverse results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the pollution control
facilities category include securities issued on behalf of a private
corporation,* including utilities, to provide facilities for the treatment of
air, water and solid waste pollution. Repayment of these bonds is dependent
upon income from the specific pollution control facility and/or the financial
condition of the project corporation.
Other Utility Revenue Bonds. Bonds in this category include securities
issued to finance natural gas supply, distribution and transmission
facilities, public water supply, treatment and distribution facilities, and
sewage collection, treatment and disposal facilities. Repayment of these bonds
is dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this category
include securities issued to finance facilities for removal and disposal of
solid municipal waste. Repayment of these bonds is dependent on factors which
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* For purposes of the description of users of facilities, all references to
"corporations" shall be deemed to include any other nongovernmental person
or entity.
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may include revenues from appropriations from a governmental entity, the
financial condition of the private project corporation and revenues derived
from the collection of charges for disposal of solid waste. Repayment of
resource recovery bonds may also be dependent to various degrees on revenues
from the sale of electric energy or steam. Bonds in this category may be
subject to mandatory redemption in the event of project non-completion, if the
project is rendered uneconomical or if it is considered an environmental
hazard.
Transportation Revenue Bonds. Bonds in this category include bonds
issued for airport facilities, bridges, turnpikes, port authorities, railroad
systems, or mass transit systems. Generally, airport facility revenue bonds
are payable from and secured by the revenues derived from the ownership and
operation of a particular airport. Payment on other transportation bonds is
often dependent primarily or solely on revenues from financed facilities,
including user fees, charges, tolls and rents. Such revenues may be adversely
affected by increased construction and maintenance costs or taxes, decreased
use, competition from alternative facilities, scarcity of fuel, reduction or
loss of rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on Federal, state or
local assistance including motor fuel and motor vehicle taxes, fees, and
licenses and, therefore, may be subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of the Trust may contain other
Bonds that are "private activity bonds," which would be primarily of two
types: (1) Bonds for a publicly owned facility that a private entity may have
a right to use or manage to some degree, such as an airport, seaport facility
or water system and (2) Bonds for facilities deemed owned or beneficially
owned by a private entity but which were financed with tax-exempt bonds of a
public issuer, such as a manufacturing facility or a pollution control
facility. In the case of the first type, bonds are generally payable from a
designated source of revenues derived from the facility and may further
receive the benefit of the legal or moral obligation of one or more political
subdivisions or taxing jurisdictions. In most cases of project financing of
the first type, receipts or revenues of the Issuer are derived from the
project or the operator or from the unexpended proceeds of the bonds. Such
revenues include user fees, service charges, rental and lease payments, and
mortgage and other loan payments.
The second type of issue will generally finance projects which are owned
by or for the benefit of, and are operated by, corporate entities. Ordinarily,
such private activity bonds are not general obligations of governmental
entities and are not backed by the taxing power of such entities, and are
solely dependent upon the creditworthiness of the corporate user of the
project or corporate guarantor.
The private activity bonds in the Trust have generally been issued under
bond resolutions, agreements or trust indentures pursuant to which the
revenues and receipts payable under the issuer's arrangements with the users
or the corporate operator of a particular project have been assigned and
pledged to the holders of the private activity bonds. In certain cases a
mortgage on the underlying project has been assigned to the holders of the
private activity bonds or a trustee as additional security. In addition,
private activity bonds are frequently directly guaranteed by the corporate
operator of the project or by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds secured
primarily or solely by receipt of certain state or local taxes, including
sales and use taxes or excise taxes. Consequently, such bonds may be subject
to fluctuations in the collection of such taxes. Such bonds do not include tax
increment bonds or special assessment bonds.
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Other Revenue Bonds. Certain of the Bonds in the Trust may be revenue
bonds which are payable from and secured primarily or solely by revenues from
the ownership and operation of particular facilities, such as correctional
facilities, parking facilities, convention centers, arenas, museums and other
facilities owned or used by a charitable entity. Payment on bonds related to
such facilities is, therefore, primarily or solely dependent on revenues from
such projects, including user fees, charges and rents. Such revenues may be
affected adversely by increased construction and maintenance costs or taxes,
decreased use, competition from alternative facilities, reduction or loss of
rents or the impact of environmental considerations.
Certain of the Bonds in the Trust are 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. In a few isolated instances
to date, bonds which were thought to be escrowed to maturity have been called
for redemption prior to maturity.
Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations and/or
revenue bonds of issuers located in Puerto Rico which will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1994, approximately 87% of Puerto Rico's exports were to the United States
mainland, which was also the source of 69% of Puerto Rico's imports. In fiscal
1994, Puerto Rico experienced a $4.3 billion positive adjusted trade balance.
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the
years as a result of increased emphasis on higher wage, high technology
industries such as pharmaceuticals, electronics, computers, microprocessors,
professional and scientific instruments, and certain high technology machinery
and equipment. The service sector, including finance, insurance and real
estate, also plays a major role in the economy. It ranks second only to
manufacturing in contribution to the gross domestic product and leads all
sectors in providing employment. In recent years, the service sector has
experienced significant growth in response to and paralleling the expansion of
the manufacturing sector. Since fiscal 1985, personal income, both aggregate
and per capita, has increased consistently in each fiscal year. In fiscal
1994, aggregate personal income was $25.7 billion ($21.6 billion in 1987
prices) and personal income per capita was $7,047 ($5,902 in 1987 prices).
Personal income includes transfer payments to individuals in Puerto Rico under
various social programs. Total federal payments to Puerto Rico, which include
many types in addition to federal transfer payments, are lower on a per capita
basis in Puerto Rico than in any state. Transfer payments to individuals in
fiscal 1994 were $5.7 billion, of which $3.9 billion, or 68.9%, represent
entitlement to individuals who had previously performed services or made
contributions under programs such as Social Security, veterans benefits and
Medicare. The number of persons employed in Puerto Rico during fiscal 1994
averaged 1,011,000. Unemployment, although at a low level compared to the late
1970s, remains above the average for the United States. At fiscal year end
June 30, 1994, the unemployment rate in Puerto Rico was 16.0%. Puerto Rico's
decade-long economic expansion continued throughout the five-year period from
fiscal 1990 through fiscal 1994. Almost every sector of its economy was
affected and record levels of employment were achieved. Factors behind this
expansion include Commonwealth sponsored economic development programs, the
relatively stable prices of oil imports, the continued growth of the United
States economy, periodic declines in exchange value of the United States
dollar and the relatively low cost of borrowing during the period. The Puerto
Rico Planning Board's most recent Gross Product forecast for fiscal 1995 and
fiscal 1996, made in February 1995, shows increases of 2.9% and 2.7%,
respectively. The Planning Board's economic activity index, a composite index
for thirteen economic indicators, increased 2.7% for the first seven months of
fiscal 1995 compared to the same period of fiscal 1994, which period showed an
increase of 1.3% over the same period of fiscal 1993. Growth in the Puerto
Rico economy in fiscal
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1996 depends on several factors, including the state of the United States
economy and the relative stability in the price of oil imports, the exchange
value of the U.S. dollar and the cost of borrowing.
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 that were
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 amortized over the term of such bonds. On sale or redemption,
the difference between the (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 amortization of
original issue discount) will be treated as taxable income or loss. See "The
Trust--Tax Status" in this Part B. The Code requires holders of tax-exempt
obligations issued with original issue discount, such as the Trust, 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. Each Trust's tax basis in a Bond is increased by any accrued original
issue discount as is a Unit holder's tax basis in his Units. 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. All or a portion of any gain may be taxable as
ordinary income.
There can be no assurance that additional Federal legislation will not
be enacted or that existing legislation will not be amended hereafter with the
effect that interest on bonds becomes subject to Federal income taxation. If
the interest on the Bonds in the Trust should ultimately be deemed to be
taxable, the Trustee may sell them and, since they would be sold as taxable
securities, it is expected that they would have to be sold at a substantial
discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption prior to their
stated maturity date pursuant to sinking fund or call provisions. A sinking
fund is a reserve fund accumulated over a period of time for retirement of
debt. Sinking fund provisions are designed to redeem a significant portion of
an issue gradually over the life of the issue. Obligations to be redeemed are
generally chosen by lot. On the Date of Deposit, the offering valuations of
some of the Bonds in the Trust may have been at a premium and subject to
retirement or refunding within ten years of the Date of Deposit. A callable
debt obligation is one which is subject to redemption prior to maturity at the
option of the issuer. To the extent that obligations are deposited in the
Trust at a price higher than their par value, such redemption at par would
result in a loss of capital to a purchaser of Units at their original public
offering price. The estimated current return of the Units might also be
adversely affected if the return on the retired Bonds is greater than the
average return on the Bonds in the Trust. In general, call provisions are more
likely to be exercised when the offering side valuation is at a premium over
par than when it is at a discount from par. See "The Portfolio" in Part A for
a list of original issue discount and/or zero coupon bonds and for a breakdown
of the percentage of Bonds in the Trust with offering side valuations at a
premium, discount or at par. See also "Estimated Current Return and Estimated
Long Term Return" in Part A. The portfolio contains a listing of the sinking
fund and call provisions, if any, with respect to each of the Bonds therein.
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Substitution of Bonds
In the event of a failure to deliver any Bond that has been purchased
for the Trust under a contract, including those Bonds purchased on a "when, as
and if issued" basis ("Failed Bonds"), the Sponsors are authorized to purchase
other bonds ("Replacement Bonds") which the Trustee shall pay for out of funds
held in connection with the Failed Bonds and to accept delivery of the
Replacement Bonds to make up the original corpus of the Trust. The Replacement
Bonds must be purchased within 20 days after delivery of the notice of the
failed contract, and the purchase price (exclusive of accrued interest) may
not exceed the principal attributable to the Failed Bonds. The Replacement
Bonds (i) must be tax-exempt bonds issued by the State of New York or
counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions or their public
authorities as described in the first paragraph under "Portfolio," (ii) must
have a fixed maturity date not exceeding the maturity date of the Failed Bonds
and not less than ten years after the date of purchase, (iii) shall be
purchased at a price that results in a yield to maturity and a current return,
in each case as of the Date of Deposit, at least equal to the yield to
maturity and the current return of the Failed Bonds, (iv) shall not be "when
issued" bonds, (v) must be rated at least equal to the Failed Bonds and (vi)
must be eligible for coverage under the MBIA Insurance Corporation insurance
policy obtained by the Trust. Whenever a Replacement Bond has been acquired
for the Trust, the Trustee shall, within five days thereafter, notify all Unit
holders of the Trust of the acquisition of the Replacement Bond and shall, on
the next monthly Payment Date which is more than 30 days thereafter, make a
pro rata distribution of the amount, if any, by which the cost to the Trust of
the Failed Bond exceeded the cost of the Replacement Bond. Once the original
corpus of the Trust is acquired, the Trustee will have no power to vary the
investment of the Trust, i.e., the Trustee will have no managerial power to
take advantage of market variations to improve a Unit holder's investment.
If the right of limited substitution described in the preceding
paragraph shall not be utilized to acquire Replacement Bonds in the event of a
failed contract, the Sponsors will refund the sales charge attributable to
such Failed Bonds to all Unit holders of the Trust, and distribute the
principal and accrued interest (at the coupon rate of such Failed Bond, or
earned original issue discount in the case of zero coupon bonds, from the
Deposit Date to the date the Sponsors notify the Trustee that they will not
purchase Replacement Bonds) attributable to such Failed Bonds on the next
monthly Payment Date which is more than 30 days thereafter. In the event a
Replacement Bond is not acquired by the Trust, the Estimated Net Annual
Interest Income per Unit for the Trust would be reduced and the Estimated
Current Return thereon might be lowered.
Other Matters
An amendment to the Federal Bankruptcy Act relating to the adjustment of
indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or
otherwise alter the terms of its obligations, including those of the type
comprising the Trust's portfolio. The Sponsors are unable to predict at this
time what effect, if any, this legislation will have on the Trust.
To the best knowledge of the Sponsors, there is no litigation pending as
of the Date of Deposit in respect of any Securities 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 with
respect to Securities in the Trust. Such litigation as, for example, suits
challenging the issuance of pollution control revenue bonds under recently
enacted environmental protection statutes, may affect the validity of such
Securities or the tax-free nature of the interest thereon. While the outcome
of such litigation can never be entirely predicted with certainty, bond
counsel has given or will give opinions to the issuing authorities of each
Bond on the date of issuance to the effect that such Securities have been
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validly issued and that the interest thereon is exempt from regular Federal
income tax. In addition, other litigation or other factors may arise from time
to time which potentially may impair the ability of issuers to meet
obligations undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The price of the Units of the Trust as of the Date of Deposit was
determined by adding to the Evaluator's determination of the aggregate
offering price of the Securities per Unit a sales charge of 5.152% thereof
equal to 4.9% of the Public Offering Price. During the initial public offering
period, sales of at least 250 Units will be entitled to a volume discount from
the Public Offering Price as described below. For purchases settling after the
First Settlement Date, a proportionate share of accrued and undistributed
interest on the Securities at the date of delivery of the Units to the
purchaser is also added to the Public Offering Price.
During the initial offering period the aggregate offering price of the
Securities in the Trust is determined by the Evaluator (1) on the basis of
current offering prices for the Securities,* (2) if offering prices are not
available for any Securities, on the basis of current offering prices for
comparable securities, (3) by making an appraisal of the value of the
Securities on the basis of offering prices in the market, or (4) by any
combination of the above. Such determinations are made each business day
during the initial public offering period as of the Evaluation Time set forth
in the "Summary of Essential Financial Information" in Part A, effective for
all sales made subsequent to the last preceding determination. For information
relating to the calculation of the Redemption Price, which is based upon the
aggregate bid price of the underlying Securities and which may be expected to
be less than the aggregate offering price, see "Rights of Unit
Holders--Redemption" in Part B. Unless Securities are in default in payment of
principal or interest or in significant risk of such default, the Evaluator
will not attribute any value to the Units due to the MBIA Insurance
Corporation insurance obtained by the Trust. See also "Rights of Unit
Holders--Certificates" and "Rights of Unit Holders--Redemption" in Part B for
information relating to redemption of Units.
The Evaluator will consider in its evaluation of Securities which are in
default in payment of principal or interest or, in the Sponsors' opinion, in
significant risk of such default ("Defaulted Bonds") and which are covered by
insurance obtained by the Trust the value of the insurance guaranteeing
interest and principal payments. The value of the insurance will be equal to
the difference between (i) the market value of Defaulted Bonds assuming the
exercise of the right to obtain Permanent Insurance (less the insurance
premium attributable to the purchase of Permanent Insurance and the related
custodial fee) and (ii) the market value of such Defaulted Bonds not covered
by Permanent Insurance. In any case the Evaluator will consider the ability of
MBIA Insurance Corporation to meet its commitments under the Trust's insurance
policy, including the commitment to issue Permanent Insurance. The Evaluator
intends to use a similar valuation method with respect to Securities insured
by the Trust if there is a significant risk of default and a resulting
decrease in the market value. For a description of the circumstances under
which a full or partial
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* With respect to the evaluation of Bonds during the initial syndicate
offering period for such Bonds, the "current offering price," as determined
by the Evaluator, will normally be equal to the syndicate offering price as
of the Evaluation Time, unless the Evaluator determines that a material
event has occurred which it believes may result in the syndicate offering
price not accurately reflecting the market value of such Bonds, in which
case the Evaluator, in making its determination with respect to such Bonds,
will consider not only the syndicate offering price but also the factors
described in (2) and (3) herein.
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suspension of the right of Unit holders to redeem their Units may occur, see
"Rights of Unit Holders--Redemption" in Part B.
If the Trustee does not exercise the right to obtain Permanent Insurance
as to any Defaulted Bonds in the Trust, it is the present intention of the
Trustee, so long as the Trust contains either some Bonds not in default or any
Pre-insured Bonds, not to sell Defaulted Bonds to effect redemptions or for
any other reason but rather to retain them in the portfolio BECAUSE VALUE
ATTRIBUTABLE TO THE INSURANCE OBTAINED BY THE TRUST CANNOT BE REALIZED UPON
SALE. Insurance obtained by the issuer of a Pre-insured Bond, or by some party
other than the Trust, is effective so long as such Pre-insured Bond is
outstanding and the insurer of such Bond continues to fulfill its obligations.
Therefore, any such insurance may be considered to represent an element of
market value in regard to the Pre-insured Bond, but the exact effect, if any,
of this insurance on such market value cannot be predicted. Regardless of
whether the insurer of a Pre-insured Bond continues to fulfill its
obligations, however, such Bond will in any case continue to be insured under
the policy obtained by the Trust from MBIA Insurance Corporation as long as
the Bond is held in the Trust.
No value has been ascribed to the MBIA Insurance Corporation insurance
obtained by the Trust as of the date of this Prospectus.
The secondary market Public Offering Price of the Units of the Trust is
based on the aggregate bid price of the Bonds in the Trust (as determined by
the Evaluator) plus a sales charge determined in accordance with the schedule
set forth below, which is based upon the maturities of each Bond in the Trust.
The Sponsors have implemented this variable format as a more equitable method
of assessing the sales charge for secondary market purchases. For purposes of
computation, Bonds will be deemed to mature on their expressed maturity dates
unless the Evaluator evaluates the price of the Bonds to a different date such
as a call date or a mandatory tender date, in which case the maturity will be
deemed to be such other date.
This method of sales charge computation will apply different sales
charge rates to each Bond in the Trust based upon the maturity of each such
Bond in accordance with the following schedule:
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Secondary Market
Period Sales Change
------------------------------------
Percentage of Percentage of
Public Offering Net Amount
Per Bond Price Invested
---------------- --------------
Years to Maturity Per Bond
0 Months to 2 years...................... 1.0% 1.010%
2 but less than 3........................ 2.0% 2.091%
3 but less than 4........................ 3.0% 3.093%
4 but less than 8........................ 4.0% 4.167%
8 but less than 12....................... 5.0% 5.363%
12 but less than 15...................... 5.5% 5.820%
15 or more............................... 5.9% 6.270%
A minimum sales charge of 1.0% of the Public Offering Price will be
applied to all secondary market unit purchases.
During the initial public offering period, purchasers of 250 Units or
more will be entitled to a volume discount from the Public Offering Price as
set forth in the table below:
Discount From
Public Offering
Number of Units Price Per Unit
--------------- --------------
250-499........................................ $ 2.50
500-999........................................ 7.50
1,000-1,999.................................... 15.00
2,000 or more.................................. 20.00
Except as discussed under "Distribution of Units" below, the above
volume discount will be the responsibility of the Selling Underwriter or
dealer and will apply on all purchases at any one time by the same person of
Units in the Trust in the amounts stated. Units held in the name of the spouse
of the purchaser or in the name of a child of the purchaser under 21 years of
age are deemed for the purposes hereof to be registered in the name of the
purchaser. The graduated sales charges are also applicable to a trustee or
other fiduciary purchasing Units for a single trust estate or single fiduciary
account.
Certain commercial banks are making Units of the Trust available to
their customers on an agency basis. A portion of the sales charge discussed
above is retained by or remitted to the banks. Under the Glass-Steagall Act,
banks are prohibited from underwriting Trust Units; however, the
Glass-Steagall Act does permit certain agency transactions, and banking
regulators have not indicated that these particular agency transactions are
not permitted under such Act.
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Market for Units
Although they are not obligated to do so, the Sponsors intend to
maintain a market for the Units of the Trust and continuously to offer to
purchase Units of the Trust during the initial offering period at prices based
upon the aggregate offering price of the Securities in the Trust; and
thereafter at prices based on the aggregate bid price of the related
Securities. After the initial offering period the Sponsors' Repurchase Price
shall be not less than the Redemption Price plus accrued interest through the
expected date of settlement. (See "Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit" in Part B). There is no sales charge
incurred when a Unit holder sells Units back to the Sponsors. Any Units
repurchased by the Sponsors may be reoffered to the public by the Sponsors at
the Public Offering Price at the time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for some other
business reason, the Sponsors may discontinue purchases of Units of such
Series at prices based on the aggregate bid price of the Securities. The
Sponsors do not in any way guarantee the enforceability, marketability, or
price of any Security in the portfolio or of the Units of the Trust. In the
event that a market is not maintained for the Units of the Trust, a Unit
holder desiring to dispose of his Units may be able to do so only by tendering
such Units to the Trustee for redemption at the Redemption Price, which is
based upon the aggregate bid price of the underlying Securities. The aggregate
bid price of the Securities in the Trust may be expected to be less than the
aggregate offering price. If a Unit holder wishes to dispose of his Units, he
should inquire of the Sponsors as to current market prices prior to making a
tender for redemption to the Trustee.
See "Rights of Unit Holders--Redemption" and "Sponsors" in Part B.
Employees (and their immediate families) of Glickenhaus & Co. and
Lebenthal & Co., Inc. may, pursuant to employee benefit arrangements, purchase
Units of the Trust at a price equal to the offering side evaluation of the
underlying securities in the Trust during the initial offering period and at
the bid side thereafter, divided by the number of Units outstanding plus a
reduced sales charge of 1.5% of the Public Offering Price. Such arrangements
result in less selling effort and selling expenses than sales to employee
groups of other companies. Resales or transfers of Units purchased under the
employee benefit arrangements may only be made through the Sponsors' secondary
market, so long as it is being maintained.
Distribution of Units
The Underwriters of the Units of the Trust are listed in the
Underwriting Account (see "Underwriting Account" in Part A). It is the
Underwriters' intention to qualify Units of the Trust for sale in certain of
the states and to effect a public distribution of the Units solely through
their own organizations. However, Units may be sold to dealers who are members
of the National Association of Securities Dealers, Inc. at prices which
represent a concession equal to $30.00 per Unit from the related Public
Offering Price applicable to sales of fewer than 500 Units subject in each
case to change from time to time by the Agent for the Sponsors. Any volume
discount (see "Offering Price" in Part B) offered to investors will be borne
by the selling Underwriter or dealer except that, during the initial public
offering period, the Sponsors may pay the selling Underwriter or dealer $2.50
per Unit for individual sales of more than 500 Units.
Sales will be made only with respect to whole Units, and the Sponsors
reserve the right to reject, in whole or in part, any order for the purchase
of Units.
Underwriters and broker-dealers of the Trust, banks and/or others are
eligible to participate in a program in which such firms receive from the
Sponsors a nominal award for each of their registered representatives who have
sold
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a minimum number of units of unit investment trusts created by the Sponsors
during a specified time period. In addition, at various times the Sponsors may
implement other programs under which the sales forces of Underwriters,
brokers, dealers, banks and/or others may be eligible to win other nominal
awards for certain sales efforts, or under which the Sponsors will reallow to
any such Underwriters, brokers, dealers, banks and/or others that sponsor
sales contests or recognition programs conforming to criteria established by
the Sponsors, or participate in sales programs sponsored by the Sponsors, an
amount not exceeding the total applicable sales charges on the sales generated
by such person at the public offering price during such programs. Also, the
Sponsors in their discretion may from time to time pursuant to objective
criteria established by the Sponsors pay fees to qualifying Underwriters,
brokers, dealers, banks and/or others for certain services or activities which
are primarily intended to result in sales of Units of the Trust. Such payments
are made by the Sponsors out of their own assets and not out of the assets of
the Trust. These programs will not change the price Unitholders pay for their
Units or the amount that the Trust will receive from the Units sold.
Sponsors' and Underwriters' Profits
As set forth under "Public Offering--Offering Price" in Part B, the
Underwriters will receive gross commissions equal to the specified percentages
of the Public Offering Price of the Units of the Trust. The Sponsors will
receive from the Underwriters the excess of such gross sales commission over
$35 per Unit from Underwriters underwriting 100 to 249 Units, will receive the
excess over $36 per Unit from Underwriters underwriting 250 to 499 Units, will
receive the excess over $37 per Unit from Underwriters underwriting 500 to 749
Units, will receive the excess over $38 per Unit from Underwriters
underwriting 750 to 999 Units, will receive the excess over $39 per Unit from
Underwriters underwriting 1,000 or more Units and will receive the excess over
$40 per Unit from Underwriters who underwrite 15% of the Units of the Trust.
In addition, the Sponsors may, during the initial public offering period, pay
any Underwriter an additional $2.50 per Unit for sales to individual
purchasers of 500 or more Units. The Sponsors may also from time to time pay,
in addition to the amounts referenced above, an additional concession, in the
form of cash or other compensation, any Underwriter who underwrites or sells,
during a specific period, minimum dollar amounts of the Units of the Trust. In
no event will such additional concession paid by the Sponsors to the
Underwriter exceed the difference between the sales charge and the
Underwriter's allowance in respect of Units underwritten by the Underwriter.
Such Units then may be distributed to the public by the dealers at the Public
Offering Price then in effect.
In addition, the Sponsors realize a profit or sustain a loss, as the
case may be, in the amount of any difference between the cost of the
Securities to the Trust (which is based on the aggregate offering price of the
Securities on the Date of Deposit) and the purchase price of such Securities
to the Sponsors (which is the cost of such Securities at the time they were
acquired for the account of the Trust). The Underwriters share in the profits,
if any, described in the preceding sentence. See "Summary of Essential
Financial Information" in Part A. In addition, the Sponsors may realize
profits or sustain losses with respect to Bonds deposited in the Trust which
were acquired from one or more of the Sponsors or from underwriting syndicates
of which they were members. During the initial 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
Securities and hence in the Public Offering Price received by the Underwriters
for Units. Cash, if any, made available to the Sponsors prior to the
settlement date for the purchase of Units of the Trust may be used in the
Sponsors' businesses, subject to the limitations of the Securities Exchange
Act of 1934 and may be of benefit to the Sponsors.
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The Sponsors may have participated as underwriters or as managers or
members of underwriting syndicates from which some of the aggregate principal
amount of the Bonds were acquired for the Trust in the amounts set forth in
Part A. The Sponsors have not purchased any of the Securities in the Trust
from their managed accounts.
In maintaining a market for the Units of the Trust (see "Market for
Units") the Sponsors and Underwriters will also realize profits or sustain
losses in the amount of any difference between the price at which they buy
Units and the price at which they resell or redeem such Units and to the
extent they earn sales charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In contrast,
tax-exempt bonds customarily are offered on a "yield price" basis. Therefore,
the rate of return on each Unit is measured in terms of both Estimated Current
Return and Estimated Long-Term Return. Estimated Current Return based on the
Public Offering Price per Unit and Estimated Long-Term Return per Unit, each
as of the business day prior to the Date of Deposit, is set forth under
"Summary of Essential Financial Information " in Part A. Information regarding
the estimated monthly distributions of principal and interest to Unit holders
of the Trust is available from the Sponsors on request.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. Estimated Net
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit will vary with
changes in the offering price of the Bonds. Estimated Current Return takes
into account only the interest payable on the Bonds and does not involve a
computation of yield to maturity or to an earlier redemption date nor does it
reflect any amortization of premium or discount from par value in the Bond's
purchase price. Moreover, because interest rates on Bonds purchased at a
premium are generally higher than current interest rates on newly issued bonds
of a similar type with comparable ratings, the Estimated Current Return per
Unit may be affected adversely if such Bonds are redeemed prior to their
maturity. Therefore, there is no assurance that the Estimated Current Return
as set forth under "Summary of Essential Financial Information" in Part A will
be realized in the future.
Estimated Long-Term Return is calculated using a formula that (i) takes
into consideration, and determines and factors in the relative weightings of,
the market values, yields (taking into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all the Bonds in
the Trust and (ii) takes into account the expenses and sales charge associated
with each Unit of the Trust. The Estimated Long-Term Return assumes that each
Bond is retired on its pricing life date (i.e., that date which produces the
lowest dollar price when yield price calculations are done for each optional
call date and the maturity date of a callable security). If the Bond is
retired on any optional call or maturity date other than the pricing life
date, the yield to the holder of that Bond will be greater than the initial
quoted yield. Since the market values and estimated retirements of the Bonds,
the expenses of the Trust and the Net Annual Interest Income and Public
Offering Price per Unit may change, there is no assurance that the Estimated
Long-Term Return as set forth under "Summary of Essential Financial
Information" in Part A will be realized in the future.
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INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all principal
and interest on the Bonds in the Trust has been obtained from the Insurer by
the Trust. The Insurer has issued a policy of insurance covering each of the
Bonds in the Trust, including Pre-insured Bonds. The MBIA Insurance
Corporation insurance obtained by the Trust is only effective as to Bonds
owned by and held in the Trust and, consequently, does not cover Bonds for
which the contract for purchase fails. A "when issued" Bond will be covered
under the MBIA Insurance Corporation policy upon the settlement date of the
issue of such "when issued" Bond. The MBIA Insurance Corporation policy shall
continue in force only with respect to Bonds held in and owned by the Trust,
and the Insurer shall not have any liability under the policy with respect to
any Bonds which do not constitute part of the Trust. In determining to insure
the Bonds, the Insurer has applied its own standards which generally
correspond to the standards it has established for determining the
insurability of new issues of municipal bonds. See "Notes to Portfolio" in
Part A of this Prospectus.
By the terms of its policy, the Insurer will unconditionally guarantee
to the Trust the payment, when due, required of the issuer of the Bonds of an
amount equal to the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the Bonds as such payments shall become due but not paid. Except
as provided below with respect to issues of small issue industrial development
Bonds and pollution control revenue Bonds, in the event of any acceleration of
the due date of principal by reason of mandatory or optional redemption (other
than mandatory sinking fund redemption), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as would have been
due had there not been an acceleration. The Insurer will be responsible for
such payments less any amounts received by the Trust from any trustee for the
Bond issuers or from any other source. Except as provided below, the MBIA
Insurance Corporation policy does not guarantee payment on an accelerated
basis, the payment of any redemption premium or the value of the Units of the
Trust. The MBIA Insurance Corporation policy also does not insure against
nonpayment of principal of or interest on the Bonds resulting from the
insolvency, negligence or any other act or omission of the Trustee or other
paying agent for the Bonds. However, with respect to small issue industrial
development Bonds and pollution control revenue Bonds covered by the policy,
the Insurer guarantees any accelerated payments required to be made by or on
behalf of an issuer of such Bonds if there occurs pursuant to the terms of the
Bonds an event which results in the loss of the tax-exempt status of interest
on such Bonds, including principal, interest or premium payments payable
thereon, if any, as and when required to be made by or on behalf of the issuer
pursuant to the terms of such Bonds. No assurance can be given that the MBIA
Insurance Corporation policy would insure the payment of principal or interest
on Bonds which is not required to be paid by the issuer thereof because the
Bonds were not validly issued. At the respective times of issuance of the
Bonds, opinions relating to the validity thereof were rendered by bond counsel
to the respective issuing authorities.
The MBIA Insurance Corporation insurance policy is non-cancellable and
will continue in force so long as the Trust is in existence and the Securities
described in the policy continue to be held in and owned by the Trust (see
"The Trust-- Insurance" in Part A of this Prospectus). Failure to pay premiums
on the MBIA Insurance Corporation policy obtained by the Trust will not result
in the cancellation of insurance but will force the Insurer to take action
against the Trustee to recover premium payments due it. The Trustee in turn
will be entitled to recover such payments from the Trust.
The MBIA Insurance Corporation policy shall terminate as to any Bond
which has been redeemed from the Trust or sold by the Trustee on the date of
such redemption or on the settlement date of such sale, and the Insurer shall
not have any liability under the policy as to any such Bond thereafter. If the
date of such redemption or the settlement
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<PAGE>
date of such sale occurs between a record date and a date of payment of any
such Bonds, the MBIA Insurance Corporation policy will terminate as to such
Bond on the business day next succeeding such date of payment. The termination
of the MBIA Insurance Corporation policy as to any Bond shall not affect the
Insurer's obligations regarding any other Bond in the Trust or any other trust
which has obtained a MBIA Insurance Corporation insurance policy. The MBIA
Insurance Corporation policy will terminate as to all Bonds on the date on
which the last of the Bonds matures, is redeemed or is sold by the Trust.
Pursuant to an irrevocable commitment of the Insurer, the Trustee upon
the sale of a Bond in the Trust has the right to obtain permanent insurance
with respect to such Bond (i.e., insurance to maturity of the Bond) (the
"Permanent Insurance") upon the payment of a single predetermined insurance
premium from the proceeds of the sale of such Bond. Accordingly, any Bond in
the Trust is eligible to be sold on an insured basis. It is expected that the
Trustee will exercise the right to obtain Permanent Insurance for a Bond in
the Trust upon instruction from the Sponsors only if upon such exercise the
Trust would receive net proceeds (sale of Bond proceeds less the insurance
premium attributable to the Permanent Insurance and the related custodial fee)
from such sale in excess of the sale proceeds if such Bond were sold on an
uninsured basis.
The Permanent Insurance premium with respect to each Bond in the Trust
is determined based upon the insurability of each Bond as of the Date of
Deposit and will not be increased or decreased for any change in the
creditworthiness of such Bond unless such Bond is in default as to payment of
principal and/or interest. In such event, the Permanent Insurance premium
shall be subject to an increase predetermined at the Date of Deposit and
payable from the proceeds of the sale of such Bond. See footnote 7 to the
"Summary of Essential Financial Information" in Part A for the Trust for the
cost of Permanent Insurance as of the Date of Deposit.
Except as indicated below, insurance obtained by the Trust has no effect
on the price or redemption value of Units thereof. lt is the present intention
of the Evaluator to attribute a value to the insurance obtained by the Trust
(including the right to obtain Permanent Insurance) for the purpose of
computing the price or redemption value of Units thereof only if the Bonds
covered by such insurance are in default in payment of principal or interest
or, in the Sponsors' opinion, in significant risk of such default. The value
of the insurance will be equal to the difference between (i) the market value
of a Bond which is in default in payment of principal or interest or in
significant risk of such default assuming the exercise of the right to obtain
Permanent Insurance (less the insurance premium attributable to the purchase
of Permanent Insurance and the related custodial fee) and (ii) the market
value of such Bonds not covered by Permanent Insurance. See "Public
Offering--Offering Price" in this Part B for a more complete description of
the Evaluator's method of valuing defaulted Bonds and Bonds which have a
significant risk of default. Insurance obtained by the issuer of a Bond or by
parties other than the Trust is effective so long as such Pre-insured Bond is
outstanding and the insurer of such Pre-insured Bond continues to fulfill its
obligations.
Regardless of whether the insurer of a Pre-insured Bond continues to
fulfill its obligations, however, such Bond will continue to be insured under
the policy obtained by the Trust from the Insurer as long as the Bond is held
in the Trust. Insurance obtained by the issuer of a Bond or by other parties
may be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on such
market value cannot be predicted.
In the event that interest on or principal of a Bond is due for payment
but is unpaid by reason of nonpayment by the issuer thereof, the Insurer will
make payments to its fiscal agent, State Street Bank and Trust Company, N.A.,
New York, New York (the "Fiscal Agent"), equal to such unpaid amounts of
principal and interest not later than one business day after the Insurer has
been notified by the Trustee that such nonpayment has occurred (but not
earlier than
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the date such payment is due). The Fiscal Agent will disburse to the Trustee
the amount of principal and interest which is then due for payment but is
unpaid upon receipt by the Fiscal Agent of (i) evidence of the Trust's right
to receive payment of such principal and interest and (ii) evidence, including
any appropriate instruments of assignment, that all of the rights to payment
of such principal or interest then due for payment shall thereupon vest in the
Insurer. Upon payment by the Insurer of any principal or interest payments
with respect to any Bonds, the Insurer shall succeed to the rights of the
owner of such Bonds with respect to such payment.
The Insurer is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company. MBIA Inc. is not obligated to pay the
debts of or claims against the Insurer. The Insurer is a limited liability
corporation rather than a several liability association. The Insurer is
domiciled in the State of New York and licensed to do business in all 50
states, the District of Columbia and the Commonwealth of Puerto Rico.
As of September 30, 1995, the Insurer had admitted assets of $3.7
billion (unaudited), total liabilities of $2.5 billion (unaudited), and total
capital and surplus of $1.2 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1994, the Insurer had admitted assets of $3.4
billion (audited), total liabilities of $2.3 billion (audited), and total
capital and surplus of $1.1 billion (audited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of the Insurer's year end financial statements prepared in
accordance with statutory accounting practices are available from the Insurer.
The address of the Insurer is 113 King Street, Armonk, New York 10504.
No representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such
information subsequent to the date thereof. The Sponsors are not aware that
the information herein is inaccurate or incomplete as of the date hereof.
Standard & Poor's Rating Group, a division of McGraw Hill ("Standard &
Poor's") has assigned to the Units and Bonds in the Trust a rating of "AAA."
Moody's Investors Service has assigned a rating of "Aaa" to all of the Bonds
in the Trust, as insured. These ratings apply to the Bonds only while they are
held in the Trust. Also, these ratings reflect Standard & Poor's and Moody's
current assessments of the creditworthiness of the Insurer and their ability
to pay claims on their policies of insurance.
Battle Fowler LLP, special counsel for the Sponsors, have rendered an
opinion to the effect that the payment of proceeds from the insurance will be
excludible from Federal gross income if, and to the same extent as, such
interest would have been so excludible if paid by the issuer of the defaulted
obligations. See "Tax Status" in this Part B.
The contract of insurance relating to the Trust, certain agreements
relating to the Permanent Insurance and the negotiations in respect thereof
represent the only significant relationship between the Insurer and the Trust.
Otherwise, neither the Insurer nor any associate thereof has any material
business relationship, direct or indirect, with the Trust or the Sponsors,
except that the Sponsors may from time to time in the normal course of their
business, participate as underwriters or as managers or as members of
underwriting syndicates in the distribution of new issues of municipal bonds
for which a policy of insurance guaranteeing the payment of interest and
principal has been obtained from the Insurer, and except that James A.
Lebenthal, Chairman of the Board of Directors of Lebenthal & Co., Inc., is a
Director of the Insurer's parent company, MBIA Inc. Although all issues
contained in the Trust are individually insured, neither the Trust, the Units
nor the portfolio is insured directly or indirectly by the Insurer.
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A purpose of the insurance on the Bonds in the portfolio obtained by the
Trust is to obtain a higher yield on the Trust portfolio than would be
available if all the Securities in such portfolio had Standard & Poor's
Corporation's "AAA" rating and/or Moody's Investors Service's "Aaa" rating but
were uninsured and yet at the same time to have the protection of insurance of
payment of interest and principal on the Securities. There is, of course, no
certainty that this result will be achieved. Any Pre-insured Bonds in the
Trust (all of which are rated "AAA" by Standard & Poor's Corporation and/or
"Aaa" by Moody's Investors Service, respectively) may or may not have a higher
yield than uninsured bonds rated "AAA" by Standard & Poor's Corporation and/or
"Aaa" by Moody's Investors Service, respectively. In selecting Pre-insured
Bonds for the portfolio of the Trust, the Sponsors have applied the criteria
hereinbefore described.
Because the Securities in the Trust are insured by MBIA Insurance
Corporation as to the payment of principal and interest, Standard & Poor's
Corporation has assigned its "AAA" investment rating to the Units and Bonds in
the Trust and Moody's Investors Service has assigned a rating of "Aaa" to all
of the Bonds in the Trust, as insured. See "Statement of Condition--Notes to
Portfolio" in Part A. The obtaining of these ratings by the Trust should not
be construed as an approval of the offering of the Units by Standard & Poor's
Corporation or Moody's Investors Service or as a guarantee of the market value
of the Trust or of the Units. These ratings are not a recommendation to buy,
hold or sell and do not take into account the extent to which Trust expenses
or portfolio asset sales for less than the Trust's acquisition price will
reduce payment to the Unit holders of the interest or principal.
TAX STATUS
Interest income on the Bonds contained in the portfolio of the Trust is,
in the opinion of bond counsel to the issuing governmental authorities, which
opinion was rendered at the time of original issuance of the Bonds, excludible
from gross income under the Code. See "The Trust" in Part A.
Gain (or loss) realized on sale, maturity, or redemption of the Bonds or
on sale or redemption of a Unit is, however, includible in gross income as
capital gain (or loss) for Federal, state and local income tax purposes
assuming that the Unit is held as a capital asset. Such gain (or loss) does
not include any amount received in respect of accrued interest. In addition,
such gain (or loss) may be long or short term depending on the holding period
of the Units. Bonds selling 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 ordinary income,
rather than capital gain, to the extent of accrued market discount. 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 may be
deducted against ordinary income. Since the proceeds from sales of Bonds,
under certain circumstances, may not be distributed pro-rata, the Unit
holder's taxable income for any year may exceed their actual cash
distributions in that year.
In the opinion of Battle Fowler LLP, special counsel for the Sponsors,
under existing law:
The Trust is not an association taxable as a corporation for
Federal income tax purposes, and interest on the Bonds which is
excludible from regular Federal gross income under the Code, when
received by the Trust, will be excludible from the regular Federal gross
income of the Unit holders of the Trust. Any proceeds paid under the
insurance policy described above issued to the Trust with respect to the
Bonds and
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any proceeds paid under individual policies obtained by issuers of Bonds
or other parties which represent maturing interest on defaulted
obligations held by the Trust will be excludible from Federal gross
income if, and to the same extent as, such interest would have been so
excludible 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 Code Sections 671-679. Each Unit holder will be
considered to have received his pro rata share of income from Bonds held
by the Trust on receipt (or earlier accrual, depending on the Unit
holder's method of accounting and depending on the existence of any
original issue discount) by the Trust, 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 his Units. Gain from a sale will be treated as short term or long
term capital gain depending on how long the Bond was held by the Trust.
The total tax basis (i.e., cost) of each Unit to a Unit holder is
allocated among each of the Bonds held in the Trust (in accordance with
the proportion of the Trust comprised by each such Bond) in order to
determine his per Unit tax basis for each Bond, and the tax basis
reduction requirements of the Code relating to amortization of bond
premium will apply separately to the per Unit cost of each such Bond.
Therefore, under some circumstances, a Unit holder may realize taxable
gain when his Units are sold or redeemed for an amount equal to his
original cost. No deduction is allowed for the amortization of bond
premium on tax-exempt bonds such as the Bonds. None of the interest
received from the portfolio is subject to the alternative minimum tax
for individuals; however, some or all of the interest received from the
portfolio may be includible in the calculation of a corporation's
alternative minimum tax.
For Federal income tax purposes, when a Bond is sold, a Unit
holder may exclude from his share of the amount received any amount that
represents accrued interest but may not exclude amounts attributable to
market discount. Thus, when a Bond is sold by the Trust, taxable gain or
loss will 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, limited
in the case of Bonds issued after June 8, 1980 to the portion earned
from the date of acquisition, as discussed below). In the case of Bonds
acquired at a market discount, gain will be treated as ordinary income
to the extent of accrued market discount.
A Unit holder may also realize taxable gain or loss when a Unit is
sold or redeemed. Taxable gain will result if a Unit is sold or redeemed
for an amount greater than 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 as when the Trust disposes of
Bonds, and the Unit holder may exclude accrued interest, including the
earned portion of any original issue discount, but not amounts
attributable to market discount. In the case of Bonds acquired at a
market discount gain will be treated as ordinary income to the extent of
accrued market discount. The return of a Unit holder's tax basis is
otherwise a tax-free return of capital.
If the Trust purchases any units of a previously issued series
then, 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.
Under the income tax laws of the State and City of New York, the
Trust is not an association taxable as a corporation and the income of
the Trust will be treated as the income of the Unit holders.
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A Unit holder who is a non-resident of New York will not be
subject to New York State or City income tax on any interest or gain
derived from his interest in the Trust's assets or upon any gain from
the sale of his Units except to the extent that such interest or gain is
from property employed in a business, trade, profession or occupation
carried on by him in the State of New York. An individual Unit holder
who resides in New York State or City will not be subject to State or
City tax on interest income derived from the Bonds held in the Trust
(except in certain limited circumstances), although he will be subject
to New York State and, depending upon his place of residence, City tax
with respect to any gains realized when Bonds are sold, redeemed or paid
at maturity or when any such Units are sold or redeemed. In addition, an
individual Unit holder residing in New York State or City will not be
subject to State or City income tax on any proceeds paid under the
insurance policy or policies described above with respect to the Trust
which represent maturing interest on defaulted obligations held by the
Trustee if, and to the same extent as, such interest would have been so
excludible if paid by the issuer of the defaulted obligations. A New
York State or City resident should determine his basis and holding
period for his Units for New York State and City tax purposes in the
same manner as for Federal tax purposes.
The above 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.
Among other things, the Code provides for the following: (1) interest on
certain private activity bonds issued after August 7, 1986 is included in the
calculation of the individual's alternative minimum tax (currently taxed at a
rate of up to 28%); none of the Bonds in the Trust is a Private Activity Bond
the interest on which is subject to the alternative minimum tax; (2) interest
on certain Private Activity Bonds issued after August 7, 1986 is included in
the calculation of the corporate alternative minimum tax and 75% of the amount
by which adjusted current earnings (including interest on all tax-exempt
bonds, such as the Bonds) exceed alternative minimum taxable income, as
modified for this calculation, will be included in alternative minimum taxable
income. Interest on the Bonds is includible in the adjusted current earnings
of a corporation for purposes of such alternative minimum tax. The Code does
not otherwise require corporations, and does not require taxpayers other than
corporations, including individuals, to treat interest on the Bonds as an item
of tax preference in computing an alternative minimum tax; (3) subject to
certain exceptions, no financial institution is allowed a deduction for that
portion of the institution's interest expense allocable to tax-exempt interest
on tax-exempt 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) all taxpayers are required to report for informational
purposes on their Federal income tax returns the amount of tax-exempt interest
they receive; (6) an issuer must meet certain requirements on a continuing
basis in order for interest on a tax-exempt bond to be tax-exempt, with
failure to meet such requirements resulting in the loss of tax exemption; and
(7) a branch profits tax on U.S. branches of foreign corporations is
implemented which, because of the manner in which the branch profits tax is
calculated, may have the effect of subjecting the U.S. branch of a foreign
corporation to Federal income tax on the interest on bonds otherwise exempt
from such tax.
The Superfund Revenue Act of 1986 (the "Superfund Act") imposes a
deductible, broad-based tax on a corporation's alternative minimum taxable
income (before net operating losses and any deduction for the tax) at a rate
of $12 per $10,000 (0.12%) of alternative minimum taxable income in excess of
$2,000,000. The tax is imposed even if the corporation pays no alternative
minimum tax. For purposes of the Superfund Act, alternative minimum taxable
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income includes interest on all tax-exempt bonds to the same extent and in the
same manner as the Code. The Superfund Act does not impose a tax on taxpayers
other than corporations.
Section 86 of 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. Under Section 86 of the Code, interest on
tax-exempt bonds is to be added to adjusted gross income for purposes of
determining whether an individual's income exceeds the base amount above which
a portion of the benefits would be subject to tax.
In addition, certain "S Corporations", with accumulated earnings and
profits from Subchapter C years, may be subject to minimum tax on excess
passive income, including tax-exempt interest, such as interest on the Bonds.
At the time of the original issuance of the Bonds held by the Trust,
opinions relating to the validity of the Bonds and the exemption of interest
thereon from regular Federal income tax were or (with respect to "when issued"
Bonds) were to be rendered by bond counsel to the issuing governmental
authorities. Neither the Sponsors nor their special counsel have made any
review of proceedings relating to the issuance of such Bonds or the basis for
bond counsel's opinions.
Under Section 265 of the Code, 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. 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. Also, under Section 291 of the Code, certain
financial institutions that acquire Units may be subject to a reduction in the
amount of interest expense that would otherwise be allowable as a deduction
for Federal income tax purposes. Investors with questions regarding this issue
should consult with their tax advisors.
The Trust may contain Bonds issued with original issue discount. The
Code requires holders of tax-exempt obligations issued with original issue
discount, such as the Trust, 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 in a Bond is increased by any accrued original
issue discount as is a Unit holder's tax basis in his Units. 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.
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 under applicable provisions governing determination of such
state and local taxes, interest on tax-exempt bonds such as any 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.
If a Unit holder's tax cost for his pro rata interest in a Bond exceeds
his pro rata interest in the Bond's face amount, the Unit holder will be
considered to have purchased his pro rata interest in the Bond at a "premium."
The Unit holder will be required to amortize any premium relating to his pro
rata interest in a Bond prior to the maturity of the Bond. Amortization of
premium on a Bond will reduce a Unit holder's tax basis for his 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
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purchases a pro rata interest in a Bond at a 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).
In the case of Bonds that are private activity bonds, the opinions of
bond counsel to the respective issuing authorities indicate that interest on
such Bonds is exempt from regular federal income tax. However, interest on
such Bonds will not be exempt from regular federal income tax for any period
during which such Bonds are held by a "substantial user" of the facilities
financed by the proceeds of such Bonds or by a "related person" thereof within
the meaning of the Code. Therefore, interest on any such Bonds allocable to a
Unit holder who is such a "substantial user" or "related person" thereof will
not be tax-exempt. Furthermore, in the case of Bonds that qualify for the
"small issue" exemption, the "small issue" exemption will not be available or
will be lost if, at any time during the three-year period beginning on the
later of the date the facilities are placed in service or the date of issue,
all outstanding tax-exempt IRBs, together with a proportionate share of any
present issue, of an owner or principal user (or related person) of the
facilities was determined to have exceeded $40,000,000 on the date of issue.
In the case of Bonds issued under the $10,000,000 "small issue" exemption,
interest on such Bonds will become taxable if the face amount of the Bonds
plus certain capital expenditures exceeds $10,000,000 within 3 years of the
date of issue of such Bonds.
In addition, a Bond can lose its tax-exempt status as a result of other
subsequent but unforeseeable events such as prohibited "arbitrage" activities
by the issuer of the Bond or the failure of the Bond to continue to satisfy
the conditions required for the exemption of interest thereon from regular
federal income tax. No investigation has been made 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 assurance can be given that future events will not affect
the tax-exempt status of the Bonds. Investors should consult their tax
advisors for advice with respect to the effect of these provisions on their
particular tax situation.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME
TAX PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER THE INCOME TAX
LAWS OF ANY STATE OR LOCAL GOVERNMENT. INTEREST INCOME DERIVED FROM THE BONDS
IS NOT EXCLUDED FROM NET INCOME IN DETERMINING NEW YORK STATE OR NEW YORK CITY
FRANCHISE TAXES ON CORPORATIONS OR FINANCIAL INSTITUTIONS. THE LAWS OF SUCH
STATES AND LOCAL GOVERNMENTS VARY WITH RESPECT TO THE TAXATION OF SUCH
OBLIGATIONS.
From time to time, proposals have been introduced before Congress, the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals, including proposals for a "flat tax" or
"consumption tax", may be introduced in the future. The Sponsors cannot
predict whether additional legislation, if any, in respect of the Federal
income tax status of interest on debt obligations may be enacted and what the
effect of such legislation would be on Bonds in the Trust.
The Revenue Reconciliation Act of 1993 increases maximum marginal tax
rates for individuals and corporations, extends the authority to issue certain
categories of tax-exempt bonds (qualified small issue bonds and
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qualified mortgage bonds), expands a category of qualified tax-exempt bonds
(bonds for high-speed intercity rail facilities), limits the availability of
capital gain treatment for tax-exempt bonds purchased at a market discount,
and makes a variety of other changes. Prospective investors are urged to
consult their own tax advisors as to the effect of this Act on a possible
investment in the Trust.
In South Carolina v. Baker, the U.S. Supreme Court held that the federal
government may constitutionally require states to register bonds they issue
and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the
federal government's taxing the interest earned on state or other municipal
bonds. The Supreme Court decision affirms the authority of the federal
government to regulate and control bonds such as the Bonds in the Trust and to
tax interest on such bonds in the future. The decision does not, however,
affect the current exemption from taxation of the interest earned on the Bonds
in the Trust in accordance with Section 103 of the Code.
The opinions of counsel to the issuing governmental authorities to the
effect that interest on the Bonds is exempt from regular federal income tax
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. Investors are advised to consult their own advisors for
advice with respect to the effect of any legislative changes.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units of the Trust is evidenced by registered certificates
executed by the Trustee and the Sponsors. The Trustee is authorized to treat
as the record owner of Units that person who is registered as such owner on
the books of the Trustee. Certificates are transferable by presentation and
surrender to the Trustee properly endorsed and accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit holder may be required to pay $2.00 per certificate reissued
or transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Unit holder must
furnish indemnity satisfactory to the Trustee and must pay such expenses as
the Trustee may incur. Mutilated certificates must be surrendered to the
Trustee for replacement.
Distribution of Interest and Principal
While interest will be distributed semi-annually or monthly, depending
on the method of distribution chosen, principal, including capital gains, will
be distributed only semi-annually; provided, however, that, other than for
purposes of redemption, no distribution need be made from the Principal
Account if the balance therein is less than $1.00 per Unit then outstanding,
and that, if at any time the pro rata share represented by the Units of cash
in the Principal Account exceeds $10.00 as of a Monthly Record Date, the
Trustee shall, on the next succeeding Monthly Distribution Date, distribute
the Unit holder's pro rata share of the balance of the Principal Account.
Interest (semi-annually or monthly) and principal, including capital gains, if
any (semi-annually), received by the Trust will be distributed on each
Distribution Date to Unit holders of record of the Trust as of the preceding
Record Date who are entitled to such distributions at that time under the plan
of distribution chosen. All distributions will be net of
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applicable expenses and funds required for the redemption of Units. See
"Summary of Essential Financial Information" in Part A, "The Trust--Expenses
and Charges" and "Rights of Unit Holders--Redemption" in Part B.
The Trustee will credit to the Interest Account for the Trust all
interest received by the Trust, including that part of the proceeds of any
disposition of Securities which represents accrued interest. Other receipts of
the Trust will be credited to the Principal Account for the Trust. The pro
rata share of the Interest Account of the Trust and the pro rata share of cash
in the Principal Account (other than amounts representing failed contracts as
previously discussed) represented by each Unit thereof will be computed by the
Trustee each month as of the Record Date. See "Summary of Essential Financial
Information" in Part A. Proceeds received from the disposition of any of the
Securities subsequent to a Record Date and prior to the next succeeding
Distribution Date will be held in the Principal Account for the Trust and will
not be distributed until the second succeeding Distribution Date. Because
interest on the Securities is not received by the Trust at a constant rate
throughout the year, any particular interest distribution may be more or less
than the amount credited to the Interest Account of the Trust as of the Record
Date. See "Summary of Essential Financial Information" in Part A. 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 under the applicable plan of distribution. No distribution
need be made from the Principal Account if the balance therein is less than an
amount sufficient to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to the first
Record Date and to the related Distribution Date is an asset of the respective
Unit holder and will be realized in subsequent distributions or upon the
earlier of the sale of such Units or the maturity, redemption or sale of
Securities in the Trust.
Purchasers of Units who desire to receive distributions on a monthly
basis may elect to do so at the time of purchase during the initial public
offering period. Those indicating no choice will be deemed to have chosen the
semi-annual distribution plan. Record dates for monthly distributions will be
the fifteenth day of the preceding month and record dates for semi-annual
distributions will be the fifteenth day of May and November.
Details of estimated interest distributions under the payment plans, on
a per Unit basis, appear in footnote 9 to the "Summary of Essential Financial
Information" in Part A.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Each April, the Trustee will furnish each Unit holder a card to be
returned together with the Certificate by May 15 of such year if the Unit
holder desires to change his plan of distribution, and the change will become
effective on May 16 of such year for the ensuing twelve months. For a
discussion of redemption of Units, see "Rights of Unit
Holders--Redemption--Tender of Units" in Part B.
The Trustee will, as of the fifteenth day of each month, deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust as of
the first day of such month. See "The Trust--Expenses and Charges" in Part B.
The Trustee also may withdraw from said accounts such amounts, if any, as it
deems necessary to establish a reserve for any governmental charges payable
out of the Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any part of
such amounts to the appropriate account. In addition, the Trustee may withdraw
from the Interest Account and the Principal Account such amounts as may be
necessary to cover redemption of Units by the Trustee. See "Rights of Unit
Holders--Redemption" in Part B. Funds which are available for future
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distributions, payments of expenses and redemptions are in accounts which are
non-interest bearing to the Unit holders and are available for use by the
Trustee pursuant to normal banking procedures.
Because interest on Securities in the Trust is payable at varying
intervals, usually in semi-annual installments, the interest accruing to the
Trust will not be equal to the amount of money received and available monthly
for distribution from the Interest Account to Unit holders choosing the
monthly payment plan. Therefore, on each monthly Distribution Date, the amount
of interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest
distribution made. In order to eliminate fluctuations in monthly interest
distributions resulting from such variances during the first year of the
Trust, the Trustee is required by the Trust Agreement to advance such amounts
as may be necessary to provide monthly interest distributions of approximately
equal amounts. In addition, the Trustee has agreed to advance sufficient funds
to the Trust in order to reduce the amount of time before monthly
distributions of interest to Unit holders commence. The Trustee will be
reimbursed, without interest, for any such advances from funds available from
the Interest Account of the Trust. The Trustee's fee takes into account the
costs attributable to the outlay of capital needed to make such advances.
In order to acquire certain of the Securities subject to contract, it
may be necessary to pay on the settlement dates for delivery of such
Securities amounts covering accrued interest on such Securities which exceed
the amounts paid by Unit holders (which excess will be made available under a
letter of credit furnished by the Sponsors on the Date of Deposit). The
Trustee has agreed to pay for any amounts necessary to cover any such excess
and will be reimbursed therefor (without interest) when funds become available
from interest payments on the particular Securities with respect to which such
payments may have been made. Also, since interest on such Securities in the
portfolio of the Trust (see "The Portfolio" in Part A) does not begin accruing
as tax-exempt interest income to the benefit of Unit holders until such Bonds'
respective dates of delivery (accrued interest prior to delivery being treated
under the Code as a return of principal), the Trustee will, in order to cover
interest treated as a return of principal, adjust its fee downward in an
amount equal to the amount of interest that would have so accrued as
tax-exempt interest (if not treated as a return of principal) on such
Securities between the date of settlement for the Units and such dates of
delivery.
In addition, because of the varying interest payment dates of the
Securities comprising the Trust portfolio, accrued interest at any point in
time, subsequent to the recovery of any advancements of interest made by the
Trustee, will be greater than the amount of interest actually received by the
Trust and distributed to Unit holders. Therefore, there will usually remain an
item of accrued interest that is added to the value of the Units. If a Unit
holder sells all or a portion of his Units he will be entitled to receive his
proportionate share of the accrued interest from the purchaser of his Units.
Similarly, if a Unit holder redeems all or a portion of his Units, the
Redemption Price per Unit which he is entitled to receive from the Trustee
will also include accrued interest on the Securities. Thus, the accrued
interest attributable to a Unit will not be entirely recovered until the Unit
holder either redeems or sells such Unit or until the Trust is terminated.
Expenses and Charges
Initial Expenses
All or a portion of the expenses incurred in creating and establishing
the Trust, including the cost of the initial preparation and execution of the
Trust Agreement, the initial fees and expenses of the Trustee, legal expenses
and other actual out-of-pocket expenses, will be paid by the Trust and
amortized over a five year period. All advertising
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and selling expenses, as well as any organizational expenses not paid by the
Trust, will be borne by the Sponsors at no cost to the Trust.
Fees
The Trustee's, Sponsors' and Evaluator's fees are set forth under the
"Summary of Essential Financial Information" in Part A. The Sponsors' fee,
which is earned for portfolio supervisory services, is based on the face
amount of Securities in the Trust at December 1 of each year. The Sponsors'
fee, which is not to exceed the maximum amount set forth under the "Summary of
Essential Financial Information" for the Trust, may exceed the actual costs of
providing portfolio supervisory services for the Trust, but at no time will
the total amount the Sponsors receive for portfolio supervisory services
rendered to all series of Empire State Municipal Exempt Trust in any calendar
year exceed the aggregate cost to them of supplying such services in such
year.
The Trustee will receive for its ordinary recurring services to the
Trust an annual fee in the amount set forth in the "Summary of Essential
Financial Information" for the Trust; provided, however, that such fees may be
adjusted as set forth under the "Summary of Essential Financial Information".
There is no minimum fee and, except as hereinafter set forth, no maximum fee.
For a discussion of certain benefits derived by the Trustee from the Trust's
funds, see "Rights of Unit Holders--Distribution of Interest and Principal" in
Part B. For a discussion of the services performed by the Trustee pursuant to
its obligations under the Trust Agreement, reference is made to the material
set forth under "Rights of Unit Holders" in Part B.
The Trustee's and Evaluator's fees are payable monthly on or before each
Distribution Date and the Sponsors' annual fee is payable annually on December
1, each from the Interest Account to the extent funds are available and then
from the Principal Account. These fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases in consumer
prices for services as measured by the United States Department of Labor's
Consumer Price Index entitled "All Services Less Rent"; except no such
increase in the Trustee's fee will be so made for the sole purpose of making
up any downward adjustment therein as described in "Summary of Essential
Financial Information". If the balances in the Principal and Interest Accounts
are insufficient to provide for amounts
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payable by the Trust, or amounts payable to the Trustee which are secured by
its prior lien on the Trust, the Trustee is permitted to sell Bonds to pay
such amounts.
Insurance Premiums
The cost of the MBIA Insurance Corporation insurance obtained by the
Trust, based on the aggregate amount of Bonds in the Trust as of the Date of
Deposit, is set forth in the "Summary of Essential Financial Information".
Premiums, which are obligations of the Trust, are payable monthly by the
Trustee on behalf of the Trust. As Securities in the portfolio mature, are
redeemed by their respective issuers or are sold by the Trustee, the amount of
the premium will be reduced in respect of those Securities no longer owned by
and held in the Trust. The Trust does not incur any premium expense for any
insurance which has been obtained by an issuer of a Pre-insured Bond, since
the premium or premiums for such insurance have been paid by such issuer or
other party. Pre-insured Bonds, however, are additionally insured by the
Trust. No premium will be paid by the Trust on Bonds which are also MBIA
Insurance Corporation Pre-insured Bonds or Municipal Bond Insurance
Association Pre-insured Bonds. The premium payable for Permanent Insurance and
the related custodial fee will be paid solely from the proceeds of the sale of
a Bond from the Trust in the event the Trustee exercises the right to obtain
Permanent Insurance on such Bond.
Other Charges
The following additional charges are or may be incurred by the Trust:
all expenses (including audit and counsel fees) of the Trustee incurred in
connection with its activities under the Trust Agreement, including annual
audit expenses by independent public accountants selected by the Sponsors (so
long as the Sponsors maintain a secondary market, the Sponsors will bear any
audit expense which exceeds 50 cents per Unit), the expenses and costs of any
action undertaken by the Trustee to protect the 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 willful misconduct, bad
faith, or gross negligence on its part, arising out of or in connection with
its acceptance or administration of the Trust; and all taxes and other
governmental charges imposed upon the Securities or any part of the Trust (no
such taxes or charges are being levied or made or, to the knowledge of the
Sponsors, 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 Securities in order to make funds
available to pay all expenses.
Reports and Records
The Trustee shall furnish Unit holders of the Trust in connection with
each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed in
each case as a dollar amount per Unit. Within a reasonable time after the end
of each calendar year, the Trustee will furnish to each person who at any time
during the calendar year was a Unit holder of record, a statement providing
the following information: (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Securities and any earned original issue discount), and, if the issuers of the
Securities are located in different states or territories, the percentage of
such interest by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust (including insurance
costs), 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 Securities and the net proceeds received therefrom
(including any unearned original issue discount but excluding any portion
representing interest, with respect to the Trust
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the premium attributable to the Trustee's exercise of the right to obtain
Permanent Insurance and any related custodial fee), deductions for payments of
applicable taxes and for fees and expenses of the Trust, purchase of
Replacement Bonds, redemptions of Units, the amount of any "when issued"
interest treated as a return of capital 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 Securities held and
the number of Units outstanding on the last business day of such calendar
year; (4) the Redemption Price per Unit based upon the last computation
thereof made during such calendar year; and (5) amounts actually distributed
during such calendar year from the Interest Account and from the Principal
Account, separately stated, expressed both as total dollar amounts and as
dollar amounts representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit holders at all
reasonable times during usual business hours, books of record and account of
its transactions as Trustee including records of the names and addresses of
Unit holders of the Trust, certificates issued or held, a current list of
Securities in the Trust and a copy of the Trust Agreement.
Redemption
Tender of Units
While it is anticipated that Units can be sold in the secondary market,
Units may also be tendered to the Trustee for redemption at its corporate
trust office at 101 Barclay Street, New York, New York 10286, upon payment of
any applicable tax. At the present time there are no specific taxes related to
the redemption of the Units. No redemption fee will be charged by the Sponsors
or the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be delivered to the Trustee
and must be properly endorsed and accompanied by a written instrument of
transfer. Thus, redemption of Units cannot be effected until certificates
representing such Units have been delivered to the person seeking redemption
(see "Rights of Unit Holders--Certificates" in Part B). Unit holders must sign
exactly as their names appear on the face of the certificate with signature(s)
guaranteed by an officer of a national bank or trust company, a member firm of
either the New York, Midwest or Pacific Stock Exchange, or in such other
manner as may be acceptable to the Trustee. 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, or if the seventh
calendar day is not a business day, on the first business day prior thereto,
the Unit holder will be entitled to receive in cash an amount for each Unit
tendered equal to the Redemption Price per Unit computed as of the Evaluation
Time set forth in the "Summary of Essential Financial Information" as of the
next subsequent Evaluation Time. See "Redemption--Computation of Redemption
Price per Unit." The "date of tender" is deemed to be the date on which Units
are received by the Trustee, except that as regards Units received after the
Evaluation Time on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading or the next day on which there
is a sufficient degree of trading in Units of the Trust, and such Units will
be deemed to have been tendered to the Trustee on such day for redemption at
the Redemption Price computed on that day. For information relating to the
purchase by the Sponsors of Units tendered to the Trustee for redemption at
prices in excess of the Redemption Price, see "Redemption--Purchase by the
Sponsors of Units Tendered for Redemption" in Part B.
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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 Securities in order to
make funds available for redemption. Such sales, if required, could result in
a sale of Securities by the Trustee at a loss. To the extent Securities are
sold, the size and diversity of the Trust will be reduced.
If the Trustee exercises the right to obtain Permanent Insurance on a
Bond in the Trust, such Bond will be sold from the Trust on an insured basis.
In the event that the Trustee does not exercise the right to obtain Permanent
Insurance on a Bond, such Bond will be sold from the Trust on an uninsured
basis, since the MBIA Insurance Corporation insurance obtained by the Trust
covers the timely payment of principal and interest when due on the Bonds only
while the Bonds are held in and owned by the Trust. If the Trustee does not
obtain Permanent Insurance on a Defaulted Bond, to the extent that Bonds which
are current in payment of interest are sold from the Trust portfolio in order
to meet redemption requests and Defaulted Bonds are retained in the Portfolio
in order to preserve the related insurance protection applicable to said
Bonds, the overall value of the Bonds remaining in the Trust will tend to
diminish. See "Sponsors--Responsibility" in Part B for the effect of selling
Defaulted Bonds to meet redemption requests.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or during which trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by rule
or regulation) 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.
Because insurance obtained by the Trust terminates as to Bonds which are
sold by the Trustee, and because the insurance obtained by the Trust does not
have a realizable cash value which can be used by the Trustee to meet
redemptions of Units, under certain circumstances the Sponsors may apply to
the Securities and Exchange Commission for an order permitting a full or
partial suspension of the right of Unit holders to redeem their Units if a
significant portion of the Bonds in the Trust is in default in payment of
principal or interest or in significant risk of such default. No assurances
can be given that the Securities and Exchange Commission will permit the
Sponsors to suspend the rights of Unit holders to redeem their Units, and
without the suspension of such redemption rights when faced with excessive
redemptions the Sponsors may not be able to preserve the benefits of the
Trust's insurance on Defaulted Bonds.
Computation of Redemption Price per Unit
The Redemption Price per Unit is determined by the Trustee on the basis
of the bid prices of the Securities in the Trust, while the Public Offering
Price of Units during the initial offering period is determined on the basis
of the offering prices of the Securities, both as of the Evaluation Time on
the day any such determination is made. The bid prices of the Securities may
be expected to be less than the offering prices. This Redemption Price per
Unit is each Unit's pro rata share, determined by the Trustee, of: (1) the
aggregate value of the Securities in the Trust (determined by the Evaluator as
set forth below), except for those cases in which the value of insurance has
been included, (2) cash on hand in the Trust (other than cash covering
contracts to purchase Securities), and (3) accrued and unpaid interest on the
Securities as of the date of computation, less (a) amounts representing taxes
or governmental charges payable out of the Trust, (b) the accrued expenses of
the Trust, and (c) cash held for distribution to Unit holders of record as of
a date prior to the evaluation. The Evaluator may determine the value of the
Securities in the Trust (1) on the basis of current bid prices for the
Securities, (2) if bid prices are not available for any Securities, on the
basis of current bid
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prices for comparable bonds, (3) by appraisal, or (4) by any combination of
the above. In determining the Redemption Price per Unit no value will be
assigned to the portfolio insurance obtained by the Trust on the Bonds in the
Trust unless such Bonds are in default in payment of principal or interest or
in significant risk of such default. On the other hand, Pre-insured Bonds in
the Trust are entitled at all times to the benefits of insurance obtained by
their respective issuers so long as the Pre-insured Bonds are outstanding and
the insurer continues to fulfill its obligations, and such benefits are
reflected and included in the market value of Pre-insured Bonds. For a
description of the situations in which the Evaluator may value the insurance
obtained by the Trust, see "Public Offering--Offering Price" in this Part B.
The difference between the bid and offering prices of the Securities may
be expected to average 1 1/2% of face amount. In the case of actively traded
bonds, the difference may be as little as 1/2 of 1%, and in the case of
inactively traded bonds such difference usually will not exceed 3%. On the
business day prior to the date of this Prospectus, the aggregate bid side
evaluation was lower than the aggregate offering side evaluation by the amount
set forth in footnote 6 to the "Portfolio". For this reason, among others, the
price at which Units may be redeemed could be less than the price paid by the
Unit holder. On the Date of Deposit the aggregate current offering price of
such Securities per Unit exceeded the bid price of such Securities per Unit by
the amount set forth under "Summary of Essential Financial Information".
Purchase by the Sponsors of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the Sponsors of any
tender of Units for redemption. So long as the Sponsors are maintaining a bid
in the secondary market, the Sponsors, prior to the close of business on the
second succeeding business day, will purchase any Units tendered to the
Trustee for redemption at the price so bid by making payment therefor to the
Unit holder in an amount not less than the Redemption Price on the date of
tender not later than the day on which the Units would otherwise have been
redeemed by the Trustee (see "Public Offering--Market for Units" in this Part
B). Units held by the Sponsors may be tendered to the Trustee for redemption
as any other Units, provided that the Sponsors shall not receive for Units
purchased as set forth above a higher price than they paid, plus accrued
interest.
The offering price of any Units resold by the Sponsors will be the
Public Offering Price determined in the manner provided in this Prospectus
(see "Public Offering--Offering Price" in Part B). Any profit resulting from
the resale of such Units will belong to the Sponsors which likewise will bear
any loss resulting from a lower offering or redemption price subsequent to
their acquisition of such Units (see "Public Offering--Sponsors" and
Underwriters" Profits" in this Part B).
Exchange Option
The Sponsors of the series of Empire State Municipal Exempt Trust,
(including the series of Municipal Exempt Trust, the predecessor trust to
Empire State Municipal Exempt Trust) (the "Exchange Trusts") are offering Unit
holders of the Exchange Trusts for which the Sponsors are maintaining a
secondary market an option to exchange a Unit of any series of the Exchange
Trusts for a Unit of a different series of the Exchange Trusts being offered
by the Sponsors (other than in the initial offering period) at a Public
Offering Price generally based on the bid prices of the underlying Securities
divided by the number of Units outstanding (see "Public Offering--Markets for
Units") plus a fixed sales charge of $15 per Unit (in lieu of the normal sales
charge). However, a Unit holder must have held his Unit for a period of at
least six months in order to exercise the exchange option or agree to pay a
sales charge based on the greater of $15 per Unit or an amount which together
with the initial sales charge paid in connection with the acquisition
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of Units being exchanged equals the normal sales charge of the series into
which the investment is being converted, determined as of the date of the
exchange. Such exchanges will be effected in whole Units only. Any excess
proceeds from the Units being surrendered will be returned, and the Unit
holder will not be permitted to advance any new money in order to complete an
exchange. The Sponsors reserve the right to modify, suspend or terminate this
plan at any time without further notice to the Unit holders. In the event the
exchange option is not available to a Unit holder at the time he wishes to
exercise it, the Unit holder will be immediately notified and no action will
be taken with respect to his Units without further instructions from the Unit
holder.
Unit holders are urged to consult their own tax advisors as to the tax
consequences of exchanging Units.
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AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with Empire
Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit holders
of the Trust to elect to have distributions from Units in the Trust
automatically reinvested in shares of the Empire Builder. The Empire Builder
is an open-end, non-diversified investment company whose investment objective
is to seek as high a level of current income exempt from Federal income tax,
New York State and New York City income taxes as is believed to be consistent
with preservation of capital. It is the policy of the Empire Builder to invest
primarily in debt securities the interest income from which is exempt from
such taxes.
The Empire Builder has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Empire Builder
will be of "investment grade" quality--that is, at the time of purchase by the
Empire Builder, such bonds either will be rated not lower than the four
highest ratings of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's
(AAA, AA, A or BBB) or will be unrated bonds which at the time of purchase are
judged by the Empire Builder's investment advisor to be of comparable quality
to bonds rated within such four highest grades. It is a fundamental policy of
the Empire Builder that under normal market conditions at least 90% of the
income distributed to its shareholders will be exempt from Federal income tax,
New York State and New York City personal income taxes. However, during times
of adverse market conditions, when the Empire Builder is investing for
temporary defensive purposes in obligations other than New York tax-exempt
bonds, more than 10% of the Empire Builder's income distributions could be
subject to Federal income tax, New York State and/or New York City income
taxes, as described in the current prospectus relating to the Empire Builder
(the "Empire Builder Prospectus"). Glickenhaus & Co. ("Glickenhaus"), a
sponsor of the Trust, acts as the investment adviser and distributor for the
Empire Builder.
Each Unit holder may request from The Bank of New York (the "Plan
Agent"), a copy of the Empire Builder Prospectus describing the Empire Builder
and a form by which such Unit holder may elect to become a participant
("Participant") in the Plan. Thereafter, as directed by such person,
distributions on the Participant's Units will, on the applicable distribution
date, automatically be applied as of that date by the Trustee to purchase
shares (or fractions thereof) of the Empire Builder at a net asset value as
computed as of the close of trading on the New York Stock Exchange on such
date, as described in the Empire Builder Prospectus. Unless otherwise
indicated, new Participants in the Empire Builder Plan will be deemed to have
elected the monthly distribution plan with respect to their Units.
Confirmations of all transactions undertaken for each Participant in the Plan
will be mailed to each Participant by the Plan Agent indicating distributions
and shares (or fractions thereof) of the Empire Builder purchased on his
behalf. A Participant may at any time prior to ten days preceding the next
succeeding distribution date, by so notifying the Plan Agent in writing, elect
to terminate his participation in the Plan and receive future distributions on
his Units in cash. There will be no charge or other penalty for such
termination. The Sponsors, the Trustee, the Empire Builder and Glickenhaus, as
investment advisor for Empire Builder, each will have the right to terminate
this Plan at any time for any reason. The reinvestment of distributions from
the Trust through the Plan will not affect the income tax status of such
distributions. For more complete information about investing in the Empire
Builder through the Plan, including charges and expenses, return the enclosed
card for a copy of the Empire Builder Prospectus. Read it carefully before you
decide to participate.
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[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal & Co., Inc.,
the Sponsors have entered into an arrangement (the "Plan") with Lebenthal New
York Municipal Bond Fund (the "Bond Fund") which permits Unit holders of the
Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Bond Fund. The Bond Fund is an open-end,
non-diversified investment company whose investment objective is to maximize
current income exempt from regular Federal income tax, and from New York State
and New York City income taxes, consistent with preservation of capital and
with consideration given to opportunities for capital gain. It is the policy
of the Bond Fund to invest primarily in long term investment grade tax-exempt
securities the interest income from which is exempt from such taxes.
The Bond Fund has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Bond Fund will be
of "investment grade" quality--that is, at the time of purchase by the Bond
Fund, such bonds either will be rated not lower than the four highest ratings
of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, AA, A or BBB)
or will be unrated bonds which at the time of purchase are judged by the Bond
Fund's investment advisor to be of comparable quality to bonds rated within
such four highest grades. It is a fundamental policy of the Bond Fund that
under normal market conditions at least 80% of the income distributed to its
shareholders will be exempt from regular Federal income tax, and from New York
State and New York City personal income taxes. However, during times of
adverse market conditions, more than 20% of the Bond Fund's income
distributions could be subject to Federal income tax, New York State and/or
New York City income taxes, as described in the current prospectus relating to
the Bond Fund (the "Bond Fund Prospectus"). Lebenthal & Co., Inc., a sponsor
of the Trust, acts as the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the "Plan
Agent"), a copy of the Bond Fund Prospectus describing the Bond Fund and a
form by which such Unit holder may elect to become a participant
("Participant") in the Plan. Thereafter, as directed by such person,
distributions on the Participant's Units will, on the applicable distribution
date, automatically be applied as of that date by the Trustee to purchase
shares (or fractions thereof) of the Bond Fund at a net asset value as
computed as of the close of trading on the New York Stock Exchange on such
date, as described in the Bond Fund Prospectus. Unless otherwise indicated,
new Participants in the Bond Fund Plan will be deemed to have elected the
monthly distribution plan with respect to their Units. Confirmations of all
transactions undertaken for each Participant in the Plan will be mailed to
each Participant by the Plan Agent indicating distributions and shares (or
fractions thereof) of the Bond Fund purchased on his behalf. A Participant may
at any time prior to ten days preceding the next succeeding distribution date,
by so notifying the Plan Agent in writing, elect to terminate his
participation in the Plan and receive future distributions on his Units in
cash. There will be no charge or other penalty for such termination. The
Sponsors, the Trustee, the Bond Fund and Lebenthal & Co. Inc., as manager for
the Bond Fund, each will have the right to terminate this Plan at any time for
any reason. The reinvestment of distributions from the Trust through the Plan
will not affect the income tax status of such distributions. For more complete
information about investing in the Bond Fund through the Plan, including
charges and expenses, return the enclosed card for a copy of the Bond Fund
Prospectus. Read it carefully before you decide to participate.
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SPONSORS
Glickenhaus and Lebenthal are the Sponsors of Empire State Municipal
Exempt Trust, Series 10 and all subsequent series.
Glickenhaus, a New York limited partnership, is engaged in the
underwriting and securities brokerage business, and in the investment advisory
business. It is a member of the New York Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. and is an associate member of the
American Stock Exchange. Glickenhaus acts as a sponsor for successive Series
of The Municipal Insured National Trusts and for the prior series of Empire
State Municipal Exempt Trust including those sold under the name of Municipal
Exempt Trust, New York Exempt Series 1, New York Series 2 and New York Series
3. Glickenhaus, in addition to participating as a member of various selling
groups of other investment companies, executes orders on behalf of investment
companies for the purchase and sale of securities of such companies and sells
securities to such companies in its capacity as a broker or dealer in
securities.
Lebenthal, a New York corporation originally organized as a New York
partnership in 1925, has been buying and selling municipal bonds for its own
account as a dealer for over 67 years; Lebenthal also buys and sells
securities as an agent and participates as an underwriter in public offerings
of municipal bonds. It acted as a sponsor of Empire State Tax Exempt Bond
Trust, Series 8 and successive Series of The Municipal Insured National Trust
through Series 28. Lebenthal is registered as a broker/dealer with the
Securities and Exchange Commission and various state securities regulatory
agencies and is a member of the National Association of Securities Dealers,
Inc. and Securities Investors Protection Corp.
Limitations on Liability
The Sponsors are jointly and severally liable for the performance of
their obligations arising from their responsibilities under the Trust
Agreement, but will be under no liability to the Unit holders for taking any
action or refraining from any action in good faith or for errors in judgment;
nor will they be responsible in any way for depreciation or loss incurred by
reason of the sale of any Bonds, except in cases of their willful misconduct,
bad faith, gross negligence or reckless disregard for their obligations and
duties. See "The Trust--Portfolio" and "Sponsors--Responsibility" in Part B.
Responsibility
The Trustee shall sell, for the purpose of redeeming Units tendered by
any Unit holder and for the payment of expenses for which funds are not
available, such of the Bonds in a list furnished by the Sponsors as the
Trustee in its sole discretion may deem necessary. In the event the Trustee
does not exercise the right to obtain Permanent Insurance on a Defaulted Bond
or Bonds in the Trust, to the extent that Bonds are sold which are current in
payment of principal and interest in order to meet redemption requests and
Defaulted Bonds are retained in the Trust in order to preserve the related
insurance protection applicable to said Bonds, the overall value of the Bonds
remaining in the Trust's Portfolio will tend to diminish. In the event the
Trustee does not exercise the right to obtain Permanent Insurance on a
Defaulted Bond or Bonds, except as described below and in certain other
unusual circumstances for which it is determined by the Trustee to be in the
best interests of the Unit holders or if there is no alternative, the Trustee
is not empowered to sell Defaulted Bonds for which value has been attributed
for the insurance obtained by the Trust. Because of such restrictions on the
Trustee, under certain circumstances the Sponsors may seek a full or
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partial suspension of the right of Unit holders to redeem their Units. See
"Rights of Unit Holders--Redemption" in Part B. The Sponsors are empowered,
but not obligated, to direct the Trustee to dispose of Bonds in the event of
advanced refunding.
It is the responsibility of the Sponsors to instruct the Trustee to
reject any offer made by an issuer of any of the Securities to issue new
obligations in exchange and substitution for any Securities pursuant to a
refunding or refinancing plan, except that the Sponsors may instruct the
Trustee to accept such an offer or to take any other action with respect
thereto as the Sponsors may deem proper if the issuer is in default with
respect to such Securities or in the judgment of the Sponsors the issuer will
probably default in respect to such Securities 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 Securities originally deposited thereunder. Within five days
after the deposit of obligations in exchange or substitution for underlying
Securities, the Trustee is required to give notice thereof to each Unit
holder, identifying the obligations eliminated and the Securities substituted
therefor. Except as stated in this and the preceding paragraph and in the
discussion under "Portfolio--General Considerations" in Part B regarding the
substitution of Replacement Bonds for Failed Bonds, the acquisition by the
Trust of any securities other than the Securities initially deposited is
prohibited.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor either pursuant to the
portfolio insurance with respect to the Trust or otherwise within 30 days, the
Trustee is required to notify the Sponsors thereof. If the Sponsors fail to
instruct the Trustee to sell or to hold such Bond within 30 days after
notification by the Trustee to the Sponsors of such default, the Trustee may
in its discretion sell the defaulted Bond and not be liable for any
depreciation or loss thereby incurred. See "The Trust--Insurance on the Bonds"
in Part B.
The Sponsors may direct the Trustee to dispose of Bonds upon default in
the payment of principal or interest, institution of certain legal proceedings
or the existence of certain other impediments to the payment of Bonds, default
under other documents which may adversely affect debt service, default in the
payment of principal or interest on other obligations of the same issuer,
decline in projected income pledged for debt service on revenue Bonds, or
decline in price or the occurrence of other market factors, including advance
refunding, so that in the opinion of the Sponsors the retention of such Bonds
in the Trust would be detrimental to the interest of the Unit holders. The
proceeds from any such sales will be credited to the Principal Account for
distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final distributions to
Unit holders, if the Trustee does not exercise the right to obtain Permanent
Insurance on any Defaulted Bond, because the portfolio insurance obtained by
the Trust is applicable only while Bonds so insured are held by the Trust, the
price to be received by the Trust upon the disposition of any such Defaulted
Bond will not reflect any value based on such insurance. Therefore, in
connection with any liquidation prior to December 31, 2044, with respect to
the Trust, it shall not be necessary for the Trustee to, and the Trustee does
not currently intend to, dispose of any Bonds if retention of such Bonds,
until due, shall be deemed to be in the best interest of Unit holders,
including, but not limited to, situations in which Bonds so insured are in
default and situations in which Bonds so insured have a deteriorated market
price resulting from a significant risk of default. Since the Pre-insured
Bonds in the Trust will reflect the value of the insurance obtained by the
Bond issuer, it is the present intention of the Sponsors not to direct the
Trustee to hold any Pre-insured Bonds after the date of termination. All
proceeds received, less applicable expenses, from insurance on Defaulted Bonds
in the Trust not disposed of at the date of termination will ultimately be
distributed to Unit holders of record as of such date
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of termination as soon as practicable after the date such Defaulted Bonds
become due and applicable insurance proceeds have been received by the Trustee
(see "Summary of Essential Financial Information").
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of Essential
Financial Information" has been appointed by the other Sponsors as agent for
purposes of taking action under the Trust Agreement. If the Sponsors are
unable to agree with respect to action to be taken jointly by them under the
Trust Agreement and they cannot agree as to which Sponsor shall act as sole
Sponsor, then the Agent for Sponsors shall act as sole Sponsor. If one of the
Sponsors fails to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, that Sponsor is automatically discharged under the Trust
Agreement and the other Sponsors act as the Sponsors.
Resignation
Any Sponsor may resign at any time provided that at the time of such
resignation one remaining Sponsor maintains a net worth of $1,000,000 and all
the remaining Sponsors are agreeable to such resignation. Concurrent with or
subsequent to such resignation a new Sponsor may be appointed by the remaining
Sponsors and the Trustee to assume the duties of the resigning Sponsor. If, at
any time, only one Sponsor is acting under each Trust Agreement and that
Sponsor shall resign or fail to perform any of its duties thereunder or
becomes incapable of acting or becomes bankrupt or its affairs are taken over
by public authorities, then the Trustee may appoint a successor sponsor or
terminate the Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 1995, the total partners' capital of Glickenhaus was
$146,106,000 (audited); and at March 31, 1995, the total stockholders' equity
of Lebenthal was $3,561,506 (audited).
The foregoing information with regard to the Sponsors relates to the
Sponsors only, and not to any series of Empire State Municipal Exempt Trust.
Such information is included in this Prospectus only for the purpose of
informing investors as to the financial responsibility of the Sponsors and
their ability to carry out their contractual obligations shown herein. More
comprehensive financial information can be obtained upon request from any
Sponsor.
TRUSTEE
The Trustee is The Bank of New York, a trust company organized under the
laws of New York, having its offices at 101 Barclay Street, New York, New York
10286 (212) 495-1784. The Bank of New York is subject to supervision and
examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law.
The Trustee must be a banking corporation organized under the laws of the
United States or any state which is authorized under such laws to exercise
corporate trust powers and must have at all times an aggregate capital,
surplus and undivided profits of not less than $5,000,000. The duties of the
Trustee are primarily ministerial in nature. The Trustee did not participate
in the selection of Securities for the Trust.
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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 monies,
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 its willful misconduct, 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 the Trust which the Trustee may be required to pay under
current or future law of the United States or any other taxing authority
having jurisdiction. See "The Trust-- Portfolio" in Part A.
Responsibility
For information relating to the responsibilities of the Trustee under
the Trust Agreement, reference is made to the material set forth under "Rights
of Unit Holders," "Sponsors--Responsibility" and "Sponsors--Resignation" in
this Part B.
Resignation
By executing an instrument in writing and filing the same with the
Sponsors, the Trustee and any successor may resign. In such an event the
Sponsors are 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, or if the Sponsors deem it to be in the best
interest of the Unit holders, the Sponsors 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, upon resignation or removal of a trustee, no successor has been
appointed and has accepted the appointment within thirty days after
notification, 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
Both during and after the initial offering period, the Evaluator shall
be Muller Data Corporation ("Muller Data"), a New York corporation with main
offices located at 395 Hudson Street, New York, New York 10014. Muller Data is
a wholly owned subsidiary of Thomson Publishing Corporation, a Delaware
corporation.
Limitations on Liability
The Trustee and the Sponsors may rely on any evaluation furnished by the
Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Trust Agreement shall be made in
good faith upon the basis of the best information available to it; provided,
however, that the Evaluator shall be under no liability to the Trustee, the
Sponsors or Unit holders for errors in judgement. But this provision shall not
protect the Evaluator in cases of its willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations and duties.
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Responsibility
The Trust Agreement requires the Evaluator to evaluate the Securities on
the basis of their bid prices on each business day after the initial offering
period, when any Unit is tendered for redemption and on any other day such
evaluation is desired by the Trustee or is requested by the Sponsors. For
information relating to the responsibility of the Evaluator to evaluate the
Securities on the basis of their offering prices, see "Public
Offering--Offering Price" in Part B.
Resignation
The Evaluator may resign or may be removed by the Sponsors and the
Trustee, and the Sponsors 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 the 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
The Sponsors and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit holders when such an amendment is (1)
to cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interest of the Unit holders; and the Sponsors and the Trustee may
amend the Trust Agreement with the consent of the holders of Certificates
evidencing 66 2/3% of the Units then outstanding, provided that no such
amendment will reduce the interest in the Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units required to
consent to any such amendment without the consent of all the Unit holders. In
no event shall the Trust Agreement be amended to increase the number of Units
issuable thereunder or to permit the deposit or acquisition of securities
either in addition to or in substitution for any of the Bonds initially
deposited in the Trust, except in accordance with the provisions of each Trust
Agreement. In the event of any amendment, the Trustee is obligated to notify
promptly all Unit holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the Securities. The Trustee
shall notify all Unit holders when the value of the Trust as shown by any
evaluation is less than $2,000,000 or less than 20% of the value of the Trust
as of the date hereof, whichever is lower, at which time the Trust may be
terminated (i) by the consent of 66 2/3% of the Units or (ii) by the Trustee;
provided, however, that upon affirmative written notice to the Sponsors and
the holders at least 33 1/3% of the Units may instruct the Trustee not to
terminate the Trust. In no event, however, may the Trust continue beyond the
Mandatory Termination Date set forth in Part A; provided, however, that prior
to such date, the Trustee shall not dispose of any Bonds if the retention of
such Bonds, until due, shall be deemed to be in the best interest of the Unit
holders. In the event of termination, written notice thereof will be sent by
the Trustee to all Unit holders. Within a reasonable period after termination,
the Trustee will sell any remaining Securities, and, after paying all expenses
and charges incurred by the Trust, will distribute to each Unit holder, upon
surrender for cancellation of his certificate for Units, his pro rata share of
the balances remaining in the Interest and Principal Accounts of the Trust.
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LEGAL OPINIONS
Certain legal matters will be passed upon by Battle Fowler LLP, 75 East
55th Street, New York, New York 10022, as special counsel for the Sponsors,
and Tanner, Propp & Farber, 99 Park Avenue, New York, New York 10016, acting
as counsel for the Trustee.
AUDITORS
The statement of condition of the Trust included in this Prospectus has
been audited by BDO Seidman, LLP, independent certified public auditors, as
stated in their report appearing herein, and has been so included in reliance
upon such report given upon the authority of that firm as experts in
accounting and auditing.
DESCRIPTION OF BOND RATINGS
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. Standard & Poor"s does not perform an audit in connection
with any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended, or withdrawn as a result of changes in,
or unavailability of, such information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
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--Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
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
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are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB, B, CCC, CC--Bonds rated BB, B, CCC and CC are regarded on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation.
While such bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): to provide more detailed indications of credit
quality, the ratings from "AA" to "B" 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" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, 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.
NR--Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
SP-1: Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest. SP-3:
Speculative capacity to pay principal and interest.
* Moody's Investors Service rating. A summary of the meaning of the
applicable rating symbols as published by Moody's 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. They 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.
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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.
Ba--Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may be
small.
Con. (. . .)--Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by: (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operating experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from "Aa" through "B" in its corporate rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the security ranks in the lower end of its generic
rating category.
B-52
332948.1
<PAGE>
[This page intentionally left blank]
B-53
332948.1
<PAGE>
No person is authorized to give any
information or to make any representations
not contained in Parts A and B of this
Prospectus; and any information or
representation not contained herein
must not be relied upon as having been
authorized by the Trust, the Trustee,
the Evaluator, or the Sponsors. EMPIRE, GTD.,
The Trust is registered as a unit investment
trust under the Investment Company Act EMPIRE STATE
of 1940. Such registration does not imply MUNICIPAL EXEMPT TRUST
that the Trust or any of its Units have been GUARANTEED SERIES
guaranteed, sponsored, recommended or
approved by the United States or any state
or any agency or officer thereof. 124
-------------------------
This Prospectus does not constitute an
offer to sell, or a solicitation of
an offer to buy, securities in any state _________
person to whom it is not lawful to make
such offer in such state.
TABLE OF CONTENTS
Title Page Sponsors:
PART A Glickenhaus & Co.
Summary of Essential Information.....A-2 6 East 43rd Street
Independent Auditors' Report.........A-11 New York, New York 10017
Statements of Condition..............A-12 (212) 953-7532
Portfolio............................A-13
Underwriting Account.................A-15
PART B Lebenthal & Co., Inc.
The Trust.............................B-1 120 Broadway
Public Offering......................B-21 New York, New York 10271
Estimated Current Return and (212) 425-6116
Estimated Long Term ...............B-26
Insurance on the Bonds ..............B-27
Tax Status...........................B-30 ___________
Rights of Unit Holders...............B-35
Automatic Accumulation Account.......B-44
Sponsors.............................B-45
Trustee..............................B-47 Insurer:
Evaluator ...........................B-48
Amendment and Termination of the Trust MBIA INSURANCE CORPORATION
Agreement..........................B-49
Legal Opinions.......................B-50 113 King Street
Auditors.............................B-50 Armonk, New York 10504
Description of Bond Ratings..........B-50
Parts A and B of this Prospectus do not
contain all of the information set
forth in the registration statement
and exhibits relating thereto, filed with
the Securities and Exchange Commission,
Washington, D.C., under the Securities
Act of 1933, and the Investment Company
Act of 1940, and to which reference is
made.
332948.1
<PAGE>
PART II--ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM A--BONDING ARRANGEMENTS
The employees of Glickenhaus & Co. and Lebenthal & Co., Inc. are covered
under Brokers' Blanket Policy, Standard Form 14, in the respective amounts of
$5,000,000 and $10,000,000.
ITEM B--CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following
papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus consisting of pages.
Undertakings.
Signatures.
Written consents of the following persons:
Battle Fowler LLP (included in Exhibit 99.3.1)
BDO Seidman, LLP
Muller Data Corporation (included in Exhibit 99.5.1)
The following exhibits:
*99.1.1 -- Reference Trust Agreement including certain Amendments to the
Trust Indenture and Agreement referred to under Exhibit 99.99.1
below.
99.1.1.-- Trust Indenture and Agreement (filed as Exhibit 1.1.1 to
Amendment No. 1 to Form S-6 Registration Statement No. 33-33746
of Empire State Municipal Exempt Trust, Guaranteed Series 66 on
December 18, 1990, and incorporated herein by reference).
99.1.3 -- Form of Agreement Among Underwriters and Selected Dealers
Agreement (filed as Exhibit 1.8 to Amendment No. 1 to Form S-6
Registration Statement No. 33-28268 of Empire State Municipal
Exempt Trust, Guaranteed Series 49 on July 18, 1989, and
incorporated herein by reference).
99.1.6 -- Restated Agreement of Limited Partnership of Glickenhaus & Co.
(filed as Exhibit 1.3 to Form S-6 Registration Statement No.
2-95041 of Municipal Insured National Trust Series 1 on December
21, 1984, and incorporated herein by reference).
99.1.6(a)-- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(a) to Form
S-6 Registration Statement No. 2-95041 of Municipal Insured
National Trust Series 1 on December 21, 1984, and incorporated
herein by reference).
99.1.6(b)-- Certificate of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(b) to Form
S-6 Registration Statement No. 2-95041 of Municipal Insured
National Trust Series 1 on December 21, 1984, and incorporated
herein by reference).
- --------
* Filed herewith.
II-i
312151.1
<PAGE>
99.1.6(c) --Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(c) to Form
S-6 Registration Statement No. 2-95041 of Municipal Insured
National Trust Series 1 on December 21, 1984, and incorporated
herein by reference).
99.1.6(d)-- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.2(d) to
Amendment No. 1 to Form S-6 Registration Statement No. 33-814 of
Empire State Municipal Exempt Trust, Guaranteed Series 23 on
April 11, 1986, and incorporated herein by reference).
99.1.6(e)-- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(e) to
Amendment No. 1 to Form S-6 Registration Statement No. 33-52058
of MINT Group 8 on November 18, 1992, and incorporated herein by
reference).
99.1.6(f)-- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(e) to
Amendment No. 1 to Form S-6 Registration Statement No. 33-78036
of MINT Group 11 on May 3, 1994, and incorporated herein by
reference).
99.1.6.1-- Certificate of Incorporation of Lebenthal & Co., Inc. as amended
(filed as Exhibit 1.5 to Form S-6 Registration Statement No.
2-95041 of Municipal Insured National Trust Series 1 on December
21, 1984, and incorporated herein by reference.)
99.1.6.2-- By-Laws of Lebenthal & Co., Inc. (filed as Exhibit 1.5 to
Amendment No. 1 to Form S-6 Registration Statement No. 33-22568
of Empire State Municipal Exempt Trust, Guaranteed Series 39 on
August 9, 1988, and incorporated herein by reference).
*99.1.7-- Form of Insurance Policy obtained by the Trust.
99.1.7(1)-- Master Letter Agreement of Municipal Bond Investors Assurance
Corporation (filed as Exhibit 1.7(a) to Amendment No. 1 to Form
S-6 Registration Statement No. 33-35124 of Empire State Municipal
Exempt Trust, Guaranteed Series 59 on July 1, 1990, and
incorporated herein by reference).
99.1.7(b)-- Form of Permanent Insurance Policy of Municipal Bond Investors
Assurance Corporation (filed as Exhibit 1.7.1 to Amendment No. 1
to Form S-6 Registration Statement No. 33-10860 of Empire State
Municipal Exempt Trust, Guaranteed Series 31 on June 10, 1987,
and incorporated herein by reference).
99.2.1-- Form of Certificate (filed as Exhibit 2.1 to Amendment No. 1 to
Form S-6 Registration Statement No. 33-33746 of Empire State
Municipal Exempt Trust, Guaranteed Series 66 on December 18,
1990, and incorporated herein by reference).
*99.3.1-- Opinion of Battle Fowler LLP as to the legality of the securities
being registered.
99.4.1 -- Information as to Partners of Glickenhaus & Co. (filed as
Exhibit 4.1 to Amendment No. 1 to Form S-6 Registration Statement
No. 33-26577 of Empire State Municipal Exempt Trust, Guaranteed
Series 46 on April 19, 1989, and incorporated herein by
reference).
- --------
* Filed herewith.
II-ii
312151.1
<PAGE>
99.4.2-- Information as to Officers and Directors of Lebenthal & Co., Inc.
(filed as Exhibit 4.2 to Amendment No. 1 to Form S-6 Registration
Statement No. 33-22568 of Empire State Municipal Exempt Trust,
Guaranteed Series 39 on August 9, 1988, and incorporated herein
by reference).
99.4.3-- Affiliations of Sponsors with other investment companies (filed
as Exhibit 4.6 to Amendment No. 1 to Form S-6 Registration
Statement No. 2-95041 of Municipal Insured National Trust Series
1 on March 21, 1985, and incorporated herein by reference).
99.4.4-- Stockbrokers' Bond and Policy, Form B for Glickenhaus & Co.
(filed as Exhibit 4.7 to Form S-6 Registration Statement No.
2-95041 of Municipal Insured National Trust Series 1 on December
21, 1984, and incorporated herein by reference).
99.4.5-- Stockbrokers' Blanket Bond Policy, Standard Form No. 14 for
Lebenthal & Co., Inc. (filed as Exhibit 4.9 to Form S-6
Registration Statement No. 2-95041 of Municipal Insured National
Trust Series 1 on December 21, 1984, and incorporated herein by
reference).
*99.5.1-- Consent To Be Evaluator of Muller Data Corporation and
Affirmation Letter of Standard & Poor's Corporation.
*99.5.2-- Affirmation Letter of Moody's Investors Service.
99.6.1-- Copies of Powers of Attorney of General Partners of Glickenhaus
& Co. (filed as Exhibit 6.1 to Form S-6 Registration Statement
No. 33-64155 of Glickenhaus Value Portfolios, The 1996 Equity
Collection on November 13, 1995 and incorporated herein by
reference).
99.6.2-- Copies of Powers of Attorney of Directors and certain officers of
Lebenthal & Co., Inc. (filed as Exhibit 6.2 to Amendment No. 1 to
Form S-6 Registration Statement No. 33-55385 of Empire State
Municipal Exempt Trust, Guaranteed Series 109 on November 2,
1994, and incorporated herein by reference).
*27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Filed herewith.
II-iii
312151.1
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned registrant hereby undertakes
to file with the Securities and Exchange Commission such supplementary and
periodic information, documents, and reports as may be prescribed by any rule
or regulation of the Commission heretofore or hereafter duly adopted pursuant
to authority conferred in that section.
SIGNATURES
The registrant hereby identifies Empire State Municipal Exempt
Trust, Guaranteed Series 55 for the 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, Empire State Municipal Exempt Trust, Guaranteed Series 124 has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of New York
and State of New York on the 18th day of January, 1996.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 124
By: GLICKENHAUS & CO.
(Sponsor)
By: /S/ BRIAN C. LAUX
(Brian C. Laux, Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
NAME TITLE DATE
ALFRED FEINMAN* General Partner
(Alfred Feinman)
SETH M. GLICKENHAUS* General Partner
(Seth M. Glickenhaus)
STEVEN B. GREEN* General Partner, Chief
(Steven B. Green) Financial Officer
JEFFREY L. LEDERER* General Partner
(Jeffrey L. Lederer)
*By: /s/ Brian C. Laux January 18, 1996
(Brian C. Laux, Attorney-in-Fact)
- --------
* Executed copies of powers of attorney were filed as Exhibit 6.1 to
Registration Statement No. 33-64155 on November 13, 1996.
II-iv
312151.1
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned registrant hereby undertakes
to file with the Securities and Exchange Commission such supplementary and
periodic information, documents, and reports as may be prescribed by any rule
or regulation of the Commission heretofore or hereafter duly adopted pursuant
to authority conferred in that section. SIGNATURES
The registrant hereby identifies Empire State Municipal Exempt
Trust, Guaranteed Series 55 for the 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, Empire State Municipal Exempt Trust, Guaranteed Series 124 has
duly caused this Amendment to the Registration Statement 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 18th day of January, 1996.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 124
By: LEBENTHAL & CO., INC.
(Sponsor)
By: /s/ D. WARREN KAUFMAN
(D. Warren Kaufman, Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
NAME TITLE DATE
H. GERARD BISSINGER, II* Director
(H. Gerard Bissinger, II)
JEFFREY M. JAMES* Director
(Jeffrey M. James)
/s/ D. WARREN KAUFMAN* Director January 18, 1996
(D. Warren Kaufman)
ALEXANDRA LEBENTHAL* Director, President
(Alexandra Lebenthal)
JAMES A. LEBENTHAL* Director, Chief Executive Officer
(James A. Lebenthal)
DUNCAN K. SMITH* Director
(Duncan K. Smith)
*By: /s/ D. WARREN KAUFMAN January 18, 1996
(D. Warren Kaufman, Attorney-In-Fact)
- --------
* An executed copy of the power of attorney was filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2, 1994.
II-v
312151.1
<PAGE>
CONSENT OF COUNSEL
The consent of counsel to the use of their name in the Prospectus
included in this Registration Statement is contained in their opinion filed as
Exhibit 99.3.1 to this Registration Statement.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of Empire State Municipal Exempt Trust,
Guaranteed Series 124
We hereby consent to the use in this Amendment No. 1 to the
Registration Statement No. 33-64155 of our report dated January 18, 1996,
relating to the Statement of Condition of Empire State Municipal Exempt Trust,
Guaranteed Series 124 and to the reference to our firm under the heading
"Auditors" in the Prospectus which is a part of such Registration Statement.
BDO SEIDMAN, LLP
New York, New York
January 18, 1996
II-vi
312151.1
<PAGE>
REGISTRATION NO. 33-64253
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
EXHIBITS
FILED WITH
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
------------------------
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 124
312151.1
<PAGE>
EXHIBIT INDEX
Exhibit Number DESCRIPTION PAGE
99.1.1 -- Reference Trust Agreement including
certain Amendments to the Trust Indenture
and Agreement referred to under Exhibit
1.1.1..............................................
99.1.1.1-- Trust Indenture and Agreement (filed as
Exhibit 1.1.1 to Amendment No. 1 to Form
S-6 Registration Statement No. 33-33746 of
Empire State Municipal Exempt Trust,
Guaranteed Series 66 on December 18, 1990,
and incorporated herein by reference).
99.1.3 -- Form of Agreement Among Underwriters and
Selected Dealers Agreement (filed as
Exhibit 1.8 to Amendment No. 1 to Form S-6
Registration Statement No. 33-28268 of
Empire State Municipal Exempt Trust,
Guaranteed Series 49 on July 18, 1989, and
incorporated herein by reference).
99.1.6 -- Restated Agreement of Limited Partnership
of Glickenhaus & Co. (filed as Exhibit 1.3
to Form S-6 Registration Statement
No. 2-95041 of Municipal Insured National
Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
99.1.6(a)- Agreement of Amendment to Restated
Agreement of Limited Partnership of
Glickenhaus & Co. (filed as Exhibit 1.3(a)
to Form S-6 Registration Statement
No. 2-95041 of Municipal Insured National
Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
99.1.6(b)- Certificate of Amendment to Restated
Agreement of Limited Partnership of
Glickenhaus & Co. (filed as Exhibit 1.3(b)
to Form S-6 Registration Statement No.
2-95041 of Municipal Insured National
Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
99.1.6(c)- Agreement of Amendment to Restated
Agreement of Limited Partnership of
Glickenhaus & Co. (filed as Exhibit 1.3(c)
to Form S-6 Registration Statement No.
2-95041 of Municipal Insured National
Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
99.1.6(d)- Agreement of Amendment to Restated
Agreement of Limited Partnership of
Glickenhaus & Co. (filed as Exhibit 1.2(d)
to Amendment No. 1 to Form S-6
Registration Statement No. 33-814 of
Empire State Municipal Exempt Trust,
Guaranteed Series 23 on April 11, 1986,
and incorporated herein by reference).
99.1.6(e)- Agreement of Amendment to Restated
Agreement of Limited Partnership of
Glickenhaus & Co. (filed as Exhibit 1.3(e)
to Amendment No. 1 to Form S-6
Registration Statement No. 33-52058 of
MINT Group 8 on November 18, 1992, and
incorporated herein by reference).
99.1.6(f)- Agreement of Amendment to Restated
Agreement of Limited Partnership of
Glickenhaus & Co. (filed as Exhibit 1.3(e)
to Amendment No. 1 to Form S-6
Registration Statement No. 33-78036 of
MINT Group 11 on May 3, 1994, and
incorporated herein by reference).
99.1.6.1-- Certificate of Incorporation of
Lebenthal & Co., Inc. as amended (filed as
Exhibit 1.5 to Form S-6 Registration
Statement No. 2-95041 of Municipal Insured
National Trust Series 1 on December 21,
1984, and incorporated herein by
reference.)
<PAGE>
99.1.6.2-- By-Laws of Lebenthal & Co., Inc. (filed as
Exhibit 1.5 to Amendment No. 1 to Form S-6
Registration Statement No. 33-22568 of
Empire State Municipal Exempt Trust,
Guaranteed Series 39 on August 9, 1988,
and incorporated herein by reference).
99.1.7 -- Form of Insurance Policy obtained by the
Trust.
99.1.7(a)- Master Letter Agreement of Municipal Bond
Investors Assurance Corporation (filed as
Exhibit 1.7(a) to Amendment No. 1 to Form
S-6 Registration Statement No. 33-35124 of
Empire State Municipal Exempt Trust,
Guaranteed Series 59 on July 1, 1990, and
incorporated herein by reference).
99.1.7(b)- Form of Permanent Insurance Policy of
Municipal Bond Investors Assurance
Corporation (filed as Exhibit 1.7.1 to
Amendment No. 1 to Form S-6 Registration
Statement No. 33-10860 of Empire State
Municipal Exempt Trust, Guaranteed Series
31 on June 10, 1987, and incorporated by
reference).
99.2.1 -- Form of Certificate (filed as Exhibit 2.1
to Amendment No. 1 to Form S-6
Registration Statement No. 33-33746 of
Empire State Municipal Exempt Trust,
Guaranteed Series 66 on December 18, 1990,
and incorporated herein by reference).
99.3.1 -- Opinion of Battle Fowler LLP as to the
legality of the securities being
registered.........................................
99.4.1 -- Information as to Partners of Glickenhaus
& Co. (filed as Exhibit 4.1 to Amendment
No. 1 to Form S-6 Registration Statement
No. 33-26577 of Empire State Municipal
Exempt Trust, Guaranteed Series 46 on
April 19, 1989, and incorporated herein by
reference).
99.4.2 -- Information as to Officers and Directors
of Lebenthal & Co., Inc. (filed as
Exhibit 4.2 to Amendment No. 1 to Form S-6
Registration Statement No. 33-22568 of
Empire State Municipal Exempt Trust,
Guaranteed Series 39 on August 9, 1988,
and incorporated herein by reference).
99.4.3 -- Affiliations of Sponsors with other
investment companies (filed as Exhibit 4.6
to Amendment No. 1 to Form S-6
Registration Statement No. 2-95041 of
Municipal Insured National Trust Series 1
on March 21, 1985, and incorporated herein
by reference).
99.4.4 -- Stockbrokers' Bond and Policy, Form B for
Glickenhaus & Co. (filed as Exhibit 4.7 to
Form S-6 Registration Statement
No. 2-95041 of Municipal Insured National
Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
99.4.5 -- Stockbrokers' Blanket Bond Policy,
Standard Form No. 14 for Lebenthal & Co.,
Inc. (filed as Exhibit 4.9 to Form S-6
Registration Statement No. 2-95041 of
Municipal Insured National Trust Series 1
on December 21, 1984, and incorporated
herein by reference).
99.5.1 -- Consent To Be Evaluator of Muller Data
Corporation and Affirmation Letter of
Standard & Poor's Corporation......................
99.5.2 -- Affirmation Letter of Moody's Investors
Service............................................
2
312151.1
<PAGE>
99.6.1 -- Copies of Powers of Attorney of General
Partners of Glickenhaus & Co. (filed as
Exhibit 6.1 to Form S-6 Registration
Statement No. 33-64155 of Glickenhaus
Value Portfolios, The 1996 Equity Collection
on November 13, 1995, and incorporated herein
by reference).
99.6.2 -- Copies of Powers of Attorney of Directors
and certain officers of Lebenthal & Co.,
Inc. (filed as Exhibit 6.2 to Amendment
No. 1 to Form S-6 Registration Statement
No. 33-55385 of Empire State Municipal
Exempt Trust, Guaranteed Series 109 on
November 2, 1994, and incorporated herein
by reference).
27 -- Financial Data Schedule (for EDGAR filing
only)....................................
3
312151.1
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 124
REFERENCE TRUST AGREEMENT
This Reference Trust Agreement dated January 18, 1996 among
Glickenhaus & Co. and Lebenthal & Co., Inc., as Depositors, The Bank of New
York, as Trustee and Muller Data Corporation, as Evaluator, sets forth certain
provisions in full and incorporates other provisions by reference to the
document entitled "Empire State Municipal Exempt Trust, Guaranteed Series 66,
Trust Indenture and Agreement" dated December 18, 1990 as amended in part by
this Reference Trust Agreement (herein as amended or supplemented called the
"Indenture"). This Reference Trust Agreement and the Indenture, as
incorporated by reference herein, will constitute a single instrument.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements
herein contained, the Depositors, the Trustee, and the Evaluator agree as
follows:
Part I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the provisions
contained in the Indenture are herein incorporated by reference in their
entirety and shall be deemed to be a part of this instrument as fully and to
the same extent as though said provisions had been set forth in full in this
instrument except that for all purposes of this Empire State Municipal Exempt
Trust, Guaranteed Series 124, and all subsequent Series, the following
sections of the Indenture are amended as follows:
(a) Section 1.1(9) is hereby amended by deleting the words
"Standard and Poor's Corporation" therein and substituting the words "Muller
Data Corporation" in place thereof.
295222.1
<PAGE>
(b) Section 3.1 is hereby amended by revising it in
its entirety to read as follows:
Section 3.1. Initial Cost. The cost of the initial preparation,
printing and execution of the Certificates and this Indenture,
Registration Statement and other documents relating to the Trust,
Federal and State registration fees and costs, the initial fees
and expenses of the Trustee and Evaluator, legal and auditing
expenses and other out-of-pocket expenses (excluding expenses
incurred in the preparation and printing of preliminary
prospectuses and prospectuses, expenses incurred in the
preparation and printing of brochures and other advertising
materials and any other selling expenses), to the extent not borne
by the Depositors, shall be paid by the Trust; provided, however,
the Trust shall not bear such expenses in excess of the amount
shown in the Statement of Condition included in the Prospectus,
and any such excess shall be borne by the Depositors. To the
extent the funds in the Interest and Principal Accounts of the
Trust shall be insufficient to pay the expenses borne by the Trust
specified in this Section 3.1, the Trustee shall advance out of
its own funds and cause to be deposited and credited to the
Interest Account such amount as may be required to permit payment
of such expenses. The Trustee shall be reimbursed for such advance
in the manner provided in Section 3.5, and the provisions of
Section 6.4 with respect to the reimbursement of disbursements for
Trust expenses, including, without limitation, the lien in favor
of the Trustee therefor, shall apply to the payment of expenses
made pursuant to this Section. For purposes of calculation of
distributions under Section 3.5 and the addition provided in
clause (4) of Section 5.1, the expenses borne by the Trust
pursuant to this Section shall be deemed to accrue at a daily rate
over the time period specified for their amortization provided in
the Prospectus; provided, however, that nothing herein shall be
deemed to prevent, and the Trustee shall be entitled to, full
reimbursement for any advances made pursuant to this Section no
later than the termination of the Trust.
(c) Section 5.1 is hereby amended by revising the second sentence
thereof to read as follows:
Such evaluations shall take into account and itemize separately
(1) the cash on hand in the Trust Fund (other than cash declared
held specially for purchase of Contract Bonds under Section 3.14
hereof or cash credited to the Reserve Account) or moneys in the
-2-
295222.1
<PAGE>
process of being collected from matured interest coupons or bonds
matured or called for redemption prior to maturity, (2) the value
of each issue of the Bonds (including Contract Bonds) on the bid
side of the market as determined by the Evaluator pursuant to
Section 4.1, (3) interest accrued thereon not subject to
collection and distribution, and (4) amounts representing
organizational expenses paid less amounts representing secured
organizational expenses of the Trust.
Part II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The interest-bearing obligations listed in Schedule A hereto
have been deposited in trust under this Indenture.
(b) For the purposes of the definition of the Unit in item (28) of
Section 1.1, the fractional undivided interest in and ownership of the Trust
is 10,000.
(c) The fiscal year for the Trust shall end on September 30th
of each year.
(d) All Certificateholders of record on February 15, 1996 (the
"First Monthly Record Date") who have selected the monthly distribution plan,
will receive a distribution to be made on or shortly after March 1, 1996
(the "First Distribution Date"), and thereafter distributions will be made
monthly. The first semi-annual distribution will be made on or shortly after
June 1, 1996 to all Certificateholders of record on May 15, 1996 who
have selected the semi-annual distribution plan, and thereafter distributions
will be made semi-annually.
(e) The First Settlement Date shall mean January 23,
1996.
(f) The number of Units referred to in Section 2.3 is
10,000.
(g) For the purposes of Section 4.3, the Evaluator shall receive
for each evaluation of the Bonds in the Trust $.55 per Bond for each
valuation.
(h) For purposes of Section 6.4, the Trustee shall be
paid per annum $1.33 per $1,000 principal amount of Bonds for
-3-
295222.1
<PAGE>
that portion of the Trust under the monthly distribution plan and $0.93 per
$1,000 principal amount of Bonds for that portion of the Trust under the
semi-annual distribution plan.
(i) For purposes of Section 8.6, the Depositors' maximum annual
fee is hereby specified to be $0.25 per $1,000 principal amount of Bonds in
the Trust.
(j) For purposes of Section 9.2, the Mandatory Termination Date
for the Trust is December 31, 2044.
(k) For purposes of this Series of Empire State Municipal Exempt
Trust, the form of Certificate set forth in this Indenture shall be
appropriately modified to reflect the title of this Series as set forth above.
(l) For purposes of this Series of Empire State Municipal Exempt
Trust, the execution date of this Indenture shall be the date first written
above.
IN WITNESS WHEREOF, the parties hereto have caused this Reference
Trust Agreement to be duly executed on the date first above written.
[Signatures on separate pages]
-4-
295222.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 124
Portfolio as of Date of Deposit, January 18, 1996
<CAPTION>
Redemption Features
Port- Coupon Ant.--Anticipated Yield Cost of
folio Rating Principal Represented by Contracts to Rate and S.F.--Sinking Fund to Securities
No. (1)(2) Amount (3) Purchase Securities (4) Maturity Opt.--Optional (5) Maturity to Trust(6)(7)
- ---------------------------------- ---------------------------------------- ---------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 AAA/Aaa 2,200,000 Buffalo & Fort Erie Public Bridge 5.750% 01/01/16@100 Ant. 467% $2,250,600.00
Authority Toll Bridge System 01/01/25 01/01/05 @ 101 Opt.
Revenue Bond Series 1995 (MBIA
Insured)
2 AAA/Aaa 2,000,000 New York State Medical Care, 5.700 02/15/19 @ 100 Ant. 5.563 2,020,000.00
Facilities Finance Agency, 02/15/29 08/15/03 @ 102 Opt.
FHA-Insured Mortgage Revenue
Bonds, 1993 Series A, St. Luke's -
Roosevelt Hospital Center (MBIA
Insured)
3 AAA/Aaa 2,000,000 Dormitory Authority of the State 5.500 07/01/18 @ 100 Ant. 5.585 1,977,000.00
of New York University of Rochester, 07/01/21 07/01/04 @ 102 Opt.
Strong Memorial Hospital Revenue
Bonds, Series 1994 (MBIA Insured)
4 AAA/Aaa 1,500,000 New York City Municipal Water 5.500 06/15/21 @ 100 Ant. 5.507 1,498,350.00
Finance Authority Water & Sewer 06/15/23 06/15/04 @ 101.5 Opt.
System Revenue Bonds, Fixed Rate
Fiscal 1994 Series F (MBIA
Insured)
5 AAA/Aaa 1,650,000 New York State Medical Care 5.375 02/15/15 @ 100 Ant. 5.592 1,598,850.00
Facilities Finance Agency Hospital 02/15/25 02/15/04 @ 102 Opt.
Insured Mortgage Revenue Bonds,
1994 Series A Refunding (MBIA
Insured)
6 Baa1*/Aaa 650,000 The City of New York General 0.000 No Sinking Fund 5.712 182,812.50
Obligation Bonds, Fiscal 1994 08/01/18 No Optional Call
Series E
$10,000,000 $9,527,612.50
=========== =============
</TABLE>
<PAGE>
GLICKENHAUS & CO.
By /s/Brian C. Laux
Attorney-in-Fact
for each of the
General Partners
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, Thomas R. Westle, a Notary Public in and for the said County in the
State aforesaid, do hereby certify that Brian C. Laux, personally known to me to
be the same whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered the
said instrument as his free and voluntary act as Attorney-in-Fact for each of
the General Partners, and as the free and voluntary act of said GLICKENHAUS &
CO., for the uses and purposes therein set forth.
GIVEN, under my hand and notarial seal this 17th day of January, 1996.
/s/ Thomas R. Westle
Notary Public
THOMAS R. WESTLE, ESQ.
Notary Public, State of New York
No. 02WE4749942
Qualified in Westchester County
Certificate Filed in Westchester County
Commission Expires June 30, 1997
[SEAL]
313665.1
<PAGE>
Lebenthal & Co., Inc.
By: /s/ James E. McGrath
Authorized Officer
ATTEST:
By: /s/D. Warren Kaufman
Secretary
[CORPORATE SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, Thomas R. Westle, a Notary Public in and for the said County in the
State aforesaid, do hereby certify that James E. McGrath and D. Warren Kaufman
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument and personally known to me to be the Authorized Officer and
Secretary, respectively, of LEBENTHAL & CO., INC., appeared before me this day
in person, and acknowledged that they signed, sealed with the corporate seal of
LEBENTHAL & CO., INC., and delivered the said instrument as their free and
voluntary act as such Authorized Officer and Secretary, respectively, and as the
free and voluntary act of said LEBENTHAL & CO., INC., for the uses and purposes
therein set forth.
GIVEN, under my hand and notarial seal this 17th day of
January, 1996.
/s/Thomas R. Westle
Notary Public
THOMAS R. WESTLE, ESQ.
Notary Public, State of New York
No. 02WE4749942
Qualified in Westchester County
Certificate Filed in Westchester County
Commission Expires June 30, 1997
[SEAL]
313665.1
<PAGE>
THE BANK OF NEW YORK, Trustee
By: /s/Ludim Samabria
Vice President
ATTEST:
By: /s/Jennifer Dicker
(CORPORATE SEAL)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, Emmanuel T. Lytle, Jr., a Notary Public in and for the said County
in the State aforesaid, do hereby certify that Lubim Samabria and Jennifer
Dicker personally known to me to be the same persons whose names are subscribed
to the foregoing instrument and personally known to me to be a Vice President
and Assistant Vice President, respectively, of The Bank of New York, appeared
before me this day in person, and acknowledge that they signed, sealed with the
corporate seal of The Bank of New York and delivered the said instrument as
their free and voluntary act as such Vice President and Assistant Vice
President, respectively, and as the free and voluntary act of said The Bank of
New York for the uses and purposes therein set forth.
GIVEN, under my hand and notarial seal this 17th day of
January, 1996.
/s/Emmanuel T. Lytle, Jr.
Notary Public
[SEAL]
My commission expires: April 30, 1997
313665.1
<PAGE>
MULLER DATA CORPORATION, Evaluator
By: /s/Mario S. Buscemi
Mario S. Buscemi
Chief Operating Officer
ATTEST:
By: /s/Richard Birnbaum
Vice President
[CORPORATE SEAL]
313665.1
EXHIBIT 99.1.7
MBIA
FINANCIAL GUARANTY MASTER
WHILE IN TRUST WITH A PERMANENT OPTION
UNIT INVESTMENT TRUST INSURANCE POLICY
MBIA Insurance Corporation
Armonk, New York 10504
Policy No. ESGT-119-1010
MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of
the premium and subject to the terms of this policy, hereby unconditionally and
irrevocably guarantees to the Trust, as hereinafter defined, the full and
complete payment required to be made by or on behalf of the issuer(s) to the
applicable Paying Agent(s) or its/their successor(s) (the "Paying Agent") of an
amount equal to (i) the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the obligations described in Exhibit A attached hereto (referred to
herein as the "Obligations"), as such payments shall become due but shall not be
so paid (except that in the event of any acceleration of the due date of such
principal by reason of mandatory or optional redemption or acceleration
resulting from default or otherwise, other than any advancement of maturity
pursuant to a mandatory sinking fund payment, the payments guaranteed hereby
shall be made in such amounts and at such times as such payments of principal
would have been due had there not been any such acceleration); and (ii) the
reimbursement of any such payment which is subsequently recovered from the Trust
pursuant to a final judgment by a court of competent jurisdiction that such
payment constitutes an avoidable preference to the Trust within the meaning of
any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii)
of the preceding sentence shall be referred to herein collectively as the
"Insured Amounts."
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by the Insurer or its designee from the
Paying Agent or the Trust, that required payment of any Insured Amount has not
been made, the Insurer on the due date of such payment or within one business
day after receipt of notice of such nonpayment, whichever is later, will make a
deposit of funds, in an account with State Street Bank and Trust Company, N.A.,
in New York, New York, or its successor, sufficient for the payment of any such
Insured Amounts which are then due. Upon presentment and surrender of such
Obligations or coupons or presentment of such other proof of ownership of the
Obligations registered as to principal or as to principal and interest, together
with evidence satisfactory to State Street Bank and Trust Company, N.A. that (i)
in the case of Pre-Insured Obligations, as hereinafter defined, that demand for
payment has been made from the other insurer, and (ii) in all cases, that such
Obligations or coupons are the Obligations or coupons described in this policy
or replacements or successors thereto, and any appropriate instruments of
assignment to evidence the assignment of the Insured Amounts due on the
Obligations as are paid by the Insurer, and appropriate instruments to effect
the appointment of the Insurer as agent for the Trust in any legal proceeding
related to payment of Insured Amounts on the Obligations or coupons, such
instruments being in a form satisfactory to State Street Bank and Trust Company,
N.A, State Street Bank and Trust Company, N.A. shall disburse to the Trust or
the Paying Agent making such presentment and/or surrender payment of the Insured
Amounts due on such Obligations and coupons, less any amount held by the Paying
Agent for the payment of such Insured Amounts and legally available therefor.
This policy does not insure against loss of any prepayment premium which may at
any time be payable with respect to any Obligation or coupon.
The term "Depositor" shall mean Glickenhaus & Co and Lebenthal &
Co., Inc. and its successors or any successor Depositor.
The term "Pre-Insured Obligations" shall mean obligations, if
any, on which the payment of principal of and/or interest on shall have been
insured prior to the issuance of this policy by an insurer other than the
Insurer.
The term "Trust" shall mean the Empire State Municipal Exempt Trust,
Guaranteed Series 124, created pursuant to the Trust Indenture and
Agreement dated December 18, 1990 among the Depositor, the Trustee and
Standard & Poor's Corporation as supplemented and amended by the
Reference Trust Agreement dated January 18, 1996 among the Depositor, the
Trustee and Muller Data Corporation.
The term "Trustee" shall mean The Bank of New York, or any
successor trustee or co-trustee.
Any service of process on the Insurer may be made to the Insurer
at its offices located at 113 King Street, Armonk, New York 10504, and such
service of process shall be valid and binding.
This policy shall only apply to Obligations held in and owned by
the Trust and shall not apply to any Obligations not deposited therein by the
Depositor. This policy shall continue in force only with respect to
Obligations held in and owned by the Trust, and, subject to the provisions of
this paragraph, the Insurer shall not have any liability under this policy
with respect to any Obligations which do not constitute part of the Trust.
This policy is non-cancellable during the term hereof for any reason, but
shall terminate as to any Obligation which has been redeemed from or sold by
the Trustee or the Trust on the date of such redemption or on the settlement
date of such sale, and the Insurer shall not have any liability under this
policy as to any such Obligation thereafter. If the date of such redemption
or the settlement date of such sale occurs between a record date and a date of
payment of any such Obligation, this policy shall terminate as to such
Obligation on the business day next succeeding such date of payment.
Notwithstanding the foregoing provisions of this paragraph, the termination of
this policy as to any Obligation shall not affect the obligations of the
Insurer regarding any other Obligation in the Trust. This policy shall
terminate as to all Obligations on the date on which the last of the
Obligations mature, are redeemed or are sold by the Trust.
The premium on this policy is not refundable for any reason,
including the payment prior to maturity of the Obligations.
This policy is issued only to the Trust and is nontransferable.
This policy shall be governed by and construed under the laws of
the State of New York.
This Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
IN WITNESS WHEREOF, the Insurer has caused this policy to be
executed in facsimile on its behalf by its President and its Assistant
Secretary, this 18th day of January, 1996.
MBIA INSURANCE CORPORATION
Richard Weill
President
Anne McKenna
Assistant Secretary
<PAGE>
MBIA
E N D O R S E M E N T
Attached to Policy No. ESGT-119-1010
issued by MBIA Insurance Corporation (the "Insurer"), to the Trust, as defined
in the policy issued with respect to the small issue industrial development
bonds and pollution control revenue bonds listed in Exhibit A (the "Bonds").
It is further understood that this policy shall guarantee to the Trust, as
defined in the policy, the full and complete payments required to be made by
or on behalf of the Issuer if there occurs pursuant to the terms of the Bonds
an event which results in the loss of the tax exempt status of the interest on
the Bonds, including any principal, interest or premium payments payable
thereon, if any, as and when thereby required.
This endorsement forms a part of the policy to which it is attached, effective
on the inception date of the policy.
IN WITNESS WHEREOF, the Insurer has caused this endorsement to be executed in
facsimile on its behalf by its President and its Assistant Secretary
this 18th day of January, 1996.
MBIA INSURANCE CORPORATION
Richard Weill
President
Anne McKenna
Assistant Secretary
MBIA
CERTIFICATE OF MBIA INSURANCE CORPORATION
(EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 124)
This Certificate is being delivered in connection with the
issuance by MBIA Insurance Corporation (the "Corporation")
of a Municipal Bond Guaranty Insurance Policy relating to EMPIRE STATE MUNICIPAL
EXEMPT TRUST, GUARANTEED SERIES 124 (the "Policy"). The undersigned, hereby
certifies that she is qualified and acting as an Assistant Secretary of
the Corporation.
The undersigned hereby certifies that:
(a) The Policy has been duly executed, is a valid and binding
obligation of the Corporation enforceable in accordance with
its terms except that the enforcement of the Policy may be
limited by laws relating to bankruptcy, insolvency,
reorganization, moratorium, receivership and other similar
laws affecting creditors' rights generally and by general
principles of equity;
(b) The information concerning the Corporation and its policy or
policies as set forth in the prospectus of the Trust filed as
part of a Registration Statement dated January 18, 1996 under
the caption entitled "The Trust -- Insurance on the Bonds,"
regarding Empire State Municipal Exempt Trust, Guaranteed
Series 124, is accurate; and
(c) The financial information as of September 30, 1995 for the
Corporation supplied to the Sponsors is true and correct
financial information provided to the New York Insurance
Department in connection with the licensing of the
Corporation, and such financial information is the most
recent financial information available.
IN WITNESS WHEREOF, the undersigned has herewith set her hand and
caused her signature to be affixed hereto on this 18th day of
January, 1996.
By
Anne McKenna
Assistant Secretary
January 18, 1996
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271-0005
Re: Empire State Municipal Exempt Trust,
Guaranteed Series 124
Dear Sirs:
We have acted as special counsel for Glickenhaus & Co. and
Lebenthal & Co., Inc., as Depositors, Sponsors and Principal Underwriters
(collectively, the "Depositors") of Empire State Municipal Exempt Trust,
Guaranteed Series 124 (the "Trust") in connection with the issuance by the
Trust of 10,000 units of fractional undivided interest (collectively, the
"Units") in the Trust. Pursuant to the Trust Agreement referred to below, the
Depositors have transferred to the Trust certain long-term bonds and contracts
to purchase certain long-term bonds together with an irrevocable letter of
credit to be held by the Trustee upon the terms and conditions set forth in
the Trust Agreement. (All bonds to be acquired by the Trust are collectively
referred to as the "Bonds").
In connection with our representation, we have examined copies of
the following documents relating to the creation of the Trust and the issuance
and sale of the Units: (a) the Trust Indenture and Agreement and related
Reference Trust Agreement, each of even date herewith, relating to the Trust
(the "Trust Agreements") among the Depositors, the Bank of New York, as
Trustee, and Muller Data Corporation, as Evaluator; (b) the notification of
registration on Form N-8A and the Registration Statement on
207440.1
2
<PAGE>
Glickenhaus & Co.
January 18, 1996
Form N-8B-2, as amended, relating to the Trust, as filed with the Securities
and Exchange Commission (the "Commission") pursuant to the Investment Company
Act of 1940 (the "1940 Act"); (c) the Registration Statement on Form S-6
(Registration No. 33-64253) filed with the Commission pursuant to the
Securities Act of 1933 (the "1933 Act"), and Amendment No. 1 thereto (said
Registration Statement, as amended by said Amendment No. 1, being herein
called the "Registration Statement"); (d) the proposed form of final
Prospectus (the "Prospectus") relating to the Units, which is expected to be
filed with the Commission this day; (e) certified resolutions of Lebenthal &
Co. Inc., authorizing the execution and delivery by it of the Trust Agreements
and the consummation of the transactions contemplated thereby; (f) the
Certificate of Incorporation and By-Laws of Lebenthal & Co., Inc. and the
Restated Agreement of Limited Partnership of Glickenhaus & Co.; and (g) a
certificate of an authorized officer or partner of each of the Depositors with
respect to certain factual matters contained therein.
We have also examined the applications for orders of exemption
from certain provisions of the 1940 Act, and the amendments thereto, filed
with the Commission on May 23, 1978 (file no. 812-4315), on November 7, 1978
(file no. 812-4389), on September 10, 1980 (file no. 812-4334) and on November
9, 1984 (file no. 812-5980) and the related orders issued by the Commission
with respect thereto on June 20, 1978, January 10, 1979, December 31, 1980 and
February 22, 1985, respectively.
We have not reviewed the financial statements, compilation of the
Bonds held by the Trust, or other financial or statistical data contained in
the Registration Statement and the Prospectus, as to which you have been
furnished with the reports of the accountants appearing in the Registration
Statement and the Prospectus.
In addition, 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.
In addition, with respect to the opinion set forth in paragraph
(1) below, and insofar as that opinion relates to Glickenhaus & Co., we have
relied, with their approval, on the opinion of Newman Tannenbaum Helpern
Syracuse & Hirsctritt dated of even date herewith.
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
207440.1
<PAGE>
3
Glickenhaus & Co.
January 18, 1996
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.
Based exclusively on the foregoing, we are of the opinion that
under existing law:
(1) The Trust Agreements have been duly authorized and entered
into by an authorized officer or General Partner of each of the Depositors and
are valid and binding obligations of the Depositors in accordance with their
terms.
(2) The execution and delivery of the Certificates evidencing the
Units has been duly authorized by the Depositors and such Certificates, when
executed by the Depositors and the Trustee in accordance with the provisions
of the Certificates and the Trust Agreements and issued for the consideration
contemplated therein, will constitute fractional undivided interests in the
Trust, will be entitled to the benefits of the Trust Agreements, will conform
in all material respects to the description thereof for the Units as provided
in the Trust Agreements and the Registration Statement, and the Units will be
fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of our name in the Registration
Statement and in the Prospectus under the headings "Tax Status" and "Legal
Opinions". We authorize you to deliver copies of this opinion to the Trustee
and the Underwriters named in Schedule A to the Master Agreement Among
Underwriters relating to the Trust and the Trustee may rely on this opinion as
fully and to the same extent as if it had been addressed to it.
This opinion is intended solely for the benefit of the addressees
and the Trustee in connection with the issuance of the Units of the Trust and
may not be relied upon in any other manner or by any other person without our
express written consent.
Very truly yours,
Battle Fowler LLP
207440.1
MULLER DATA CORPORATION
A Thomson Financial Services Company
January 18, 1996
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271
RE: Empire State Municipal Exempt Trust,
Guaranteed Series 124
Gentlemen:
We have examined Registration Statement File No.33-64253 for
the above-captioned trust. We hereby acknowledge that Muller
Data Corporation is currently acting as the evaluator for the
trust. We hereby consent to the use in the Registration Statement
of the reference to Muller Data Corporation as evaluator.
In addition, we hereby confirm that the ratings indicated in
the Registration Statement for the respective bonds
comprising the trust portfolio are the ratings currently
indicated in our UITS 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,
Mario S. Buscemi
Chief Operating Officer
395 Hudson Street, New York,
New York 10014-3622 -- (212) 807-3800
<PAGE>
Standard & Poor's
A Division of The McGraw-Hill Companies, Inc.
25 Broadway
New York, New York 10004-1064
Telephone 212/208-8287
FAX 212/208-8034
Sanford B. Bragg
Managing Director
Managed Funds Ratings
January 18, 1996
Glickenhaus & Company
6 East 43rd Street
New York, New York 10017
Re: Empire State Municipal Exempt Trust, Guaranteed Series 124
Pursuant to your request for a Standard & Poor's rating on the units
of the above-captioned trust, SEC #33-64253, we have reviewed the
information presented to us and have assigned a 'AAA' rating to the
units of the trust and a 'AAA' rating to the securities contained in
the trust. The ratings are direct reflections, of the portfolios of the
trust, which will be composed solely of securities covered by bond
insurance policies that insure against default in the payment of
principal and interest on the securities. Since such policies have been issued
by one or more insurance companies which have been assigned 'AAA' claims paying
ability ratings by Standard & Poor's, Standard & Poor's has assigned a 'AAA'
rating to the units of the trust and to the securities contained in the trust.
Please note that securities covered by bond insurance policies that insure such
securities only as long as they remain in the trust are rated 'AAA' only as long
as they remain in the trust.
You have permission to use the name of Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. and the above-assigned ratings in
connection with your dissemination of information relating to these units,
provided that it is understood that the ratings are not "market" ratings nor
recommendations to buy, hold, or sell the units of the trust or the securities
contained in the trust. Further, it should be understood the rating on the units
does not take into account the extent to which fund expenses or portfolio asset
sales for less than the fund's purchase price will reduce payment to the unit
holders of the interest and principal required to be paid on the portfolio
assets. Standard & Poor's reserves the right to advise its own clients,
subscribers, and the public of the ratings. Standard & Poor's relies on the
sponsor and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the ratings.
Standard & Poor's does not independently verify the truth or accuracy of any
such information.
This letter evidences our consent to the use of the name of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. in connection
with the rating assigned to the units in the registration statement or
prospectus relating to the units or the trust. However, this letter should not
be construed as a consent by us, within the meaning of Section 7 of the
Securities Act of 1933, to the use of the name of Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. in connection with the
ratings assigned to the securities contained in the trust. You are hereby
authorized to file a copy of this letter with the Securities and Exchange
Commission.
Please be certain to send us three copies of your final prospectus as
soon as it becomes available. Should we not receive them within a
reasonable time after the closing or should they not conform to the
representations made to us, we reserve the right to withdraw the
rating.
We are pleased to have had the opportunity to be of service to you. If
we can be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford B. Bragg
EXHIBIT 99.5.2
Moody's Investors Service
99 Church Street
New York, NY 10007
January 17, 1996
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
RE: Empire State Municipal Exempt
Trust, Guaranteed Series 124
Gentlemen:
Moody's Investors Service has assigned the rating of Aaa
(MBIA Insurance Corp.) to each of the bonds insured by MBIA
Insurance Corporation, comprising Empire State Municipal
Exempt Trust, Guaranteed Series 124. The rating is based
upon an insurance policy provided by MBIA Insurance
Corporation. The rating applies to each bond only while it is
held in such trust.
Please send us a final Prospectus when available. Should
you have any questions regarding the above, please do not
hesitate to contact the assigned analyst, Margaret
Kessler, at (212) 553-7884.
Sincerely yours,
Daniel N. Heimowitz
Executive Vice President
Director
Public Finance Dept.
DNH:vlw
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the statement
of condition as of date of deposit and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<CURRENCY> US DOLLARS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-18-1996
<PERIOD-END> JAN-18-1996
<PERIOD-TYPE> OTHER
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 9,527,613
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<NUMBER-OF-SHARES-SOLD> 0
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<PER-SHARE-NAV-END> 965
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</TABLE>
