As filed with the Securities and Exchange Commission on July 28, 2000
Registration No. 333-01811*
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 4
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 127
AND GUARANTEED SERIES 128
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, NY 10017 New York, NY 10271
D. Name and complete address of agent for service:
SETH M. GLICKENHAUS JAMES A. LEBENTHAL Copy of comments to:
Glickenhaus & Co. Lebenthal & Co., Inc. MICHAEL R. ROSELLA, ESQ.
6 East 43rd Street 120 Broadway Paul, Hastings, Janofsky
New York, NY 10017 New York, NY 10271 & Walker LLP
75 East 55th Street
New York, NY 10022
(212) 318-6800
It is proposed that this filing become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b) of Rule 485
/ / (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
================================================================================
* The Prospectus included in this Registration Statement constitutes a
combined Prospectus as permitted by the provisions of Rule 429 of the
General Rules and Regulations under the Securities Act of 1933 (the
"Act"). Said Prospectus covers units of undivided interest in Empire
State Municipal Exempt Trust, Guaranteed Series 127 and Guaranteed
Series 128 covered by prospectuses heretofore filed as part of separate
registration statements on Form S-6 (Registration Nos. 333-01811 and
333-01813, respectively) under the Act.
NYC55/9344.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
Prospectus, Part I 7,663 Units Dated: July 28, 2000
NOTE: Part I of this Prospectus may not be distributed unless
-------------------------------------------------------------
accompanied by Part II.
-----------------------
This Prospectus consists of two parts. The first part contains a
"Summary of Essential Financial Information" on the reverse hereof as of April
28, 2000 and a summary of additional specific information including "Special
Factors Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of March 31, 2000. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, 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 and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited in
the portfolio of the Trust are sometimes referred to herein as the "Securities."
Insurance guaranteeing the payment of principal and interest on the Securities
while in the Trust has been obtained by the Trust from the Insurer as set forth
in Part II under "Insurance on the Bonds." Such insurance does not guarantee the
market value of the Securities or the Units offered hereby. The payment of
interest and the preservation of principal are, of course, dependent upon the
continuing ability of the issuers of the Bonds and any other insurer to meet
their obligations.
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights of
Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid
price of the Securities in the Trust divided by the number of Units outstanding,
plus a sales charge determined on the basis of the maturities of the Securities
in the Trust. See "Public Offering -- Offering Price" in Part II of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do
so, intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering --
Market for Units." 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 underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should 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 SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 127
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 28, 2000
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: INTERACTIVE DATA CORPORATION
<TABLE>
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 7,765,000
Number of Units: 7,663
Fractional Undivided Interest in the Trust Per Unit: 1/7,663
Total Value of Securities in the Portfolio (Based on Bid Side Evaluations of Securities): $7,432,283.79
==================
Sponsors' Repurchase Price Per Unit: $ 969.89
Plus Sales Charge(1): 49.94
------------------
Public Offering Price Per Unit(2): $ 1,019.83
==================
Redemption Price Per Unit(3): $ 969.89
Excess of Public Offering Price Over Redemption Price Per Unit: $ 49.94
Weighted Average Maturity of Bonds in the Trust: 20.233 years
</TABLE>
<TABLE>
<S> <C>
Evaluation Time: 2:00 p.m., New York Time, on the day next following receipt by a Sponsor of an
order for a Unit sale or purchase or by the Trustee of a Unit tendered for
redemption.
Annual Insurance Premium: $1,859
Evaluator's Fee: $.55 for each issue of Bonds in the Trust for each daily valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.42 under the monthly
and $1.02 under the semi-annual distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount of underlying securities.
Date of Deposit: April 23, 1996
Date of Trust Agreement: April 23, 1996
Mandatory Termination Date: December 31, 2045
Minimum Principal
Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000
</TABLE>
-2-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 127
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 28, 2000
(Continued)
<TABLE>
<CAPTION>
Monthly Semi-annual
------------------- -------------------
<S> <C> <C>
P Estimated Annual Interest Income: $55.52 $55.52
Less Annual Premium on Portfolio Insurance .23 .23
E Less Estimated Annual Expenses 3.02 2.51
------------------- -------------------
R Estimated Net Annual Interest Income: $52.27 $52.78
=================== ===================
U Estimated Interest Distribution: $ 4.35 $26.39
N Estimated Current Return Based on Public Offering Price (4): 5.13% 5.17%
I
Estimated Long-Term Return Based on Public Offering Price (5): 5.20% 5.25%
T
Estimated Daily Rate of Net Interest Accrual: $.14519 $.14661
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>
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to May 3, 2000, the expected date of settlement, of
$2.61 monthly and $24.70 semi-annually.
3. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
4. 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
Trustee 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 "Tax Status" and "Estimated Current Return and Estimated
Long-Term Return to Unit Holders" in Part II of this Prospectus.
5. 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. See "Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in Part II
of this Prospectus.
-3-
<PAGE>
Portfolio Information
---------------------
On March 31, 2000, the bid side valuation of 69.9% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par and
30.1% was at a premium over par. See Note (B) to "Tax-Exempt Bond Portfolio" for
information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
----------------------------------------
The Portfolio consists of 7 issues of Bonds issued by entities located in New
York or certain United States territories or possessions. The following
information is being supplied to inform Unit holders of circumstances affecting
the Trust. 19.7% of the aggregate principal amount of the Bonds in the Portfolio
are general obligations of the governmental entities issuing them and are backed
by the taxing power thereof. 80.3% 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 the
purpose of issue are as follows: General Obligation, 2 (19.7%); Revenue: Health
Care, 3 (34.5%); and Transportation, 2 (45.8%). The Trust is deemed to be
concentrated in the Health Care and Transportation Bonds categories (1). Five
issues, constituting 55.9% of the Bonds in the Portfolio, are original issue
discount bonds, of which one is a zero coupon bond. On March 31, 2000, 5 issues
(85.3%) were rated AAA and one issue (5.1%) was rated A- by Standard & Poor's
Corporation (2). One issue was partially refunded. The partially refunded issue
(9.6%) was rated AAA by Standard & Poor's Corporation(2). Subsequent to such
date, such ratings may have changed. See "Tax-Exempt Bond Portfolio." For a more
detailed discussion, it is recommended that Unit holders consult the official
statements for each Security in the Portfolio of the Trust.
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
-- Portfolio" in Part II of this Prospectus.
1 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 II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part II
of this Prospectus.
-4-
<PAGE>
Taxes
-----
Interest on the Bonds in the Trust Portfolio is generally exempt from regular
federal income tax. It is also generally exempt from New York State and New York
City personal income tax. Bond counsel to the issuing governmental authorities
delivered their opinions confirming the tax exempt status of the interest on the
dates of issuance of the Bonds. See "The Trust - Portfolio" in Part II of this
Prospectus.
Gain or loss realized on a sale, maturity or redemption of the Bonds by the
Trust or on a sale or redemption of a Unit by a Unit Holder must be taken into
account for federal, state and local income tax purposes. It will be capital
gain or loss if the Units are held as capital assets and will be long-term if
the Units (and the Bonds) have been held for more than one year. The gain or
loss on disposition does not include any amount received that is attributable to
accrued interest or earned original issue discount (which is generally treated
as tax exempt interest) or any accrued market discount (which is generally
treated as ordinary income). Long-term capital gains realized by noncorporate
taxpayers are taxed at a maximum federal income tax rate of 20% while ordinary
income and short-term capital gains received by noncorporate taxpayers will be
taxed at regular federal income tax rates of up to 39.6%.
-5-
<PAGE>
INDEPENDENT AUDITORS' REPORT
============================
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 127:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 127, including the bond portfolio, as
of March 31, 2000, and the related statements of operations and changes in net
assets for the years ended March 31, 2000, 1999 and 1998. These financial
statements are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. Our procedures included
confirmation of securities owned as of March 31, 2000, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 127 as of March 31, 2000, and the results of its
operations and changes in net assets for the years ended March 31, 2000, 1999
and 1998, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 28, 2000
-6-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
STATEMENT OF NET ASSETS
MARCH 31, 2000
===================================
<TABLE>
<S> <C>
INVESTMENTS IN SECURITIES, at market value (cost $7,296,218)........................................ $7,505,698
ACCRUED INTEREST RECEIVABLE......................................................................... 111,719
ORGANIZATION COSTS, net of amortization............................................................ 5,333
-----------------
Total trust property............................................................................. 7,622,750
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES....................................................... 30,734
-----------------
NET ASSETS.......................................................................................... $7,592,016
=================
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
--------------- --------------- ---------------
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED INTERESTS........................ $5,025,646 $2,481,015 $7,506,661
UNDISTRIBUTED NET INVESTMENT INCOME............................ 34,573 50,782 85,355
--------------- --------------- ---------------
Total value................................................. $5,060,219 $2,531,797 $7,592,016
=============== =============== ===============
UNITS OUTSTANDING.............................................. 5,135 2,535 7,670
=============== =============== ===============
VALUE PER UNIT................................................. $ 985.44 $ 998.74
=============== ===============
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
STATEMENTS OF OPERATIONS
===================================
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------------------------------
2000 1999 1998
--------------------- --------------------- --------------------
INVESTMENT INCOME - INTEREST............................ $ 445,762 $506,642 $ 539,208
--------------------- --------------------- --------------------
<S> <C> <C> <C>
EXPENSES:
Trustee fees......................................... 12,423 13,569 13,593
Evaluation fees...................................... 1,226 1,074 1,046
Insurance premiums................................... 1,970 2,486 2,717
Sponsors' advisory fees.............................. 2,201 2,342 2,475
Auditors' fees....................................... 1,952 1,955 1,800
Amortization of organization costs................... 5,013 5,013 5,013
--------------------- --------------------- --------------------
Total expenses............................ 24,785 26,439 26,644
--------------------- --------------------- --------------------
NET INVESTMENT INCOME................................... 420,977 480,203 512,564
REALIZED GAIN ON SECURITIES SOLD OR REDEEMED (Note 3)... 43,231 116,002 2,310
NET CHANGE IN UNREALIZED MARKET (DEPRECIATION)
APPRECIATION......................................... (529,261) 64,720 573,225
--------------------- --------------------- --------------------
NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................... $ (65,053) $660,925 $1,088,099
===================== ===================== ====================
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
STATEMENTS OF CHANGES IN NET ASSETS
===================================
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income................................. $ 420,977 $ 480,203 $ 512,564
Realized gain on securities sold or redeemed.......... 43,231 116,002 2,310
Net change in unrealized market (depreciation)
appreciation....................................... (529,261) 64,720 573,225
------------------ ------------------ ------------------
Net (decrease) increase in net assets resulting from
operations....................................... (65,053) 660,925 1,088,099
------------------ ------------------ ------------------
DISTRIBUTIONS TO UNIT HOLDERS OF NET INVESTMENT INCOME... (426,618) (498,527) (517,301)
------------------ ------------------ ------------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 643; 1,284 and 91 units................. (639,355) (1,334,752) (92,689)
------------------ ------------------ ------------------
NET INCREASE (DECREASE) IN NET ASSETS.................... (1,131,026) (1,172,354) 478,109
NET ASSETS:
Beginning of year..................................... 8,723,042 9,895,396 9,417,287
------------------ ------------------ ------------------
End of year........................................... $ 7,592,016 $ 8,723,042 $9,895,396
------------------ ------------------ ------------------
DISTRIBUTION PER UNIT (Note 2):
Interest:
Monthly plan....................................... $52.47 $52.94 $52.78
Semi-annual plan................................... $53.07 $53.43 $53.42
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
NOTES TO FINANCIAL STATEMENTS
===================================
NOTE 1 - ACCOUNTING POLICIES
----------------------------
General
-------
The Trust is registered under the Investment Company Act of 1940.
Securities
----------
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on trade
date. The difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Realized gains (losses) from
securities transactions are determined on the basis of average cost of the
securities sold or redeemed. Interest income and expenses are recognized on the
accrual basis.
Taxes on income
---------------
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Organization Costs
------------------
Costs incurred in the organization of the Trust have been
capitalized and are amortized over a period of 60 months beginning on the date
of deposit.
NOTE 2 - DISTRIBUTIONS
----------------------
Interest received by the Trust is distributed to Unit holders
either semi-annually on the first day of June and December or, if elected by the
Unit holder, on the first day of each month, after deducting applicable
expenses. No principal distributions, resulting from the sale or redemption of
securities, were made for the years ended March 31, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
NOTE 3 - BONDS SOLD OR REDEEMED
-------------------------------
Portfolio Principal Date Realized
No. Amount Redeemed Description Net Proceeds Cost Gain
-------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2000:
<S> <C> <C> <C> <C> <C>
2 $ 60,000 4/8/99 New York State Medical Care Facility Finance $ 64,200 $ 58,950 $ 5,250
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 85,000 5/7/99 New York State Medical Care Facility Finance 90,440 83,513 6,927
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
</TABLE>
-10-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
NOTES TO FINANCIAL STATEMENTS
(Continued)
===================================
<TABLE>
<CAPTION>
NOTE 3 - BONDS SOLD OR REDEEMED(continued)
------------------------------------------
Portfolio Principal Date Realized
No. Amount Redeemed Description Net Proceeds Cost Gain
------------------------------------------------------------------------------------------------------------------------------
Year ended March 31, 2000 (continued):
<S> <C> <C> <C> <C> <C> <C>
2 $ 45,000 6/15/99 New York State Medical Care Facility Finance $ 47,115 $ 44,213 $ 2,902
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 75,000 6/23/99 New York State Medical Care Facility Finance 78,975 73,688 5,287
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 60,000 7/29/99 New York State Medical Care Facility Finance 63,090 58,950 4,140
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 25,000 8/27/99 New York State Medical Care Facility Finance 25,950 24,563 1,387
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 30,000 9/14/99 New York State Medical Care Facility Finance 31,275 29,475 1,800
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 35,000 10/25/99 New York State Medical Care Facility Finance 36,207 34,388 1,819
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 75,000 2/4/00 New York State Medical Care Facility Finance 77,550 73,688 3,862
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 75,000 3/6/00 New York State Medical Care Facility Finance 77,550 73,688 3,862
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
2 110,000 3/31/00 New York State Medical Care Facility Finance 114,070 108,075 5,995
Agency Mental Health Service Facilities
Improvement Revenue Bonds, Series D
(AMBAC Insured)
--------------- ------------- ------------- -------------
$675,000 $706,422 $663,191 $43,231
=============== ============= ============= =============
</TABLE>
-11-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
NOTES TO FINANCIAL STATEMENTS
(Concluded)
===================================
<TABLE>
<CAPTION>
NOTE 4 - NET ASSETS
-------------------
<S> <C>
Cost of 10,000 units at Date of Deposit $ 9,998,912
Less gross underwriting commission 489,900
------------------
Net cost - initial offering price 9,509,012
Realized net gain on securities sold or redeemed 162,538
Redemption of 2,330 units (2,374,369)
Unrealized market appreciation of securities 209,480
Undistributed net investment income 85,355
------------------
Net assets $ 7,592,016
==================
</TABLE>
NOTE 5 - SUBSEQUENT EVENT
-------------------------
On April 1, 2000, a monthly income distribution of $4.39 per unit
was paid to all monthly distribution plan Unit holders of record March 15, 2000.
-12-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 2000
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Title of Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Bond Rate (Note B) (Note B)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $ 1,255,000 New York State Thruway 6.000% 01/01/25 01/01/16 @ 100 Ant.
Authority, General 01/01/05 @ 102 Opt.
Revenue Bonds, Series C
(FGIC Insured)
2a AAA 100,000 New York State Medical Care 5.900 08/15/22 02/15/14 @ 100 S.F.
Facility Finance Agency 08/15/02 @ 102 Opt.
Mental Health Service
Facilities Improvement
Revenue Bonds, Series D
(AMBAC Insured)
2b AAA 645,000 New York State Medical Care 5.900 08/15/22 02/15/14 @ 100 S.F.
Facility Finance Agency 08/15/02 @ 102 Opt.
Mental Health Service
Facilities Improvement
Revenue Bonds, Series D
(AMBAC Insured)
3 AAA 2,300,000 The Port Authority of New 5.875 10/15/27 10/15/24 @ 100 S.F.
York and New Jersey 10/15/02 @ 101 Opt.
Consolidated Bonds, One
Hundred Second Series
(MBIA Insured)
</TABLE>
<TABLE>
<CAPTION>
Port- Aggregate Market Value as
folio Rating Principal Name of Issuer and Title of Cost of Bonds to of March 31, Annual Interest
No. (Note A) Amount Bond Trust 2000 Income to Trust
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $ 1,255,000 New York State Thruway $1,264,411 $1,335,345 $ 75,300
Authority, General
Revenue Bonds, Series C
(FGIC Insured)
2a AAA 100,000 New York State Medical Care 98,250 100,171 5,900
Facility Finance Agency
Mental Health Service
Facilities Improvement
Revenue Bonds, Series D
(AMBAC Insured)
2b AAA 645,000 New York State Medical Care 633,709 674,657 38,055
Facility Finance Agency
Mental Health Service
Facilities Improvement
Revenue Bonds, Series D
(AMBAC Insured)
3 AAA 2,300,000 The Port Authority of New 2,279,875 2,310,212 135,125
York and New Jersey
Consolidated Bonds, One
Hundred Second Series
(MBIA Insured)
</TABLE>
-13-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 2000
(Continued)
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Title of Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Bond Rate (Note B) (Note B)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4 AAA $1,130,000 The City of New York 5.750% 02/01/17 02/01/15 @ 100 S.F.
General Obligation 02/01/06 @ 101.5 Opt.
Bonds, Fiscal 1996,
Series G (MBIA Insured)
5 AAA 810,000 Dormitory Authority of the 5.600 08/01/25 02/01/13 @ 100 S.F.
State of New York Ellis 08/01/05 @ 102 Opt.
Hospital FHA-Insured
Mortgage Revenue Bonds,
Series 1995 (MBIA
Insured)
6 AAA 1,125,000 New York State Medical Care 5.400 08/15/33 08/15/09 @ 100 S.F.
Facilities Finance 08/15/03 @ 102 Opt.
Agency, Hospital and
Nursing Home Insured
Mortgage Revenue Bonds,
1993, Series D (MBIA
Insured)
7 A- 400,000 The City of New York 0.000 05/15/19 No Sinking Fund
General Obligation No Optional Call
Bonds, Fiscal 1993,
Series E
------------------
$7,765,000
------------------
</TABLE>
<TABLE>
<CAPTION>
Port- Aggregate Market Value as
folio Rating Principal Name of Issuer and Title of Cost of Bonds to of March 31, Annual Interest
No. (Note A) Amount Bond Trust 2000 Income to Trust
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4 AAA $1,130,000 The City of New York $1,110,223 $1,142,667 $ 64,975
General Obligation
Bonds, Fiscal 1996,
Series G (MBIA Insured)
5 AAA 810,000 Dormitory Authority of the 771,525 785,457 45,360
State of New York Ellis
Hospital FHA-Insured
Mortgage Revenue Bonds,
Series 1995 (MBIA
Insured)
6 AAA 1,125,000 New York State Medical Care 1,040,625 1,028,689 60,750
Facilities Finance
Agency, Hospital and
Nursing Home Insured
Mortgage Revenue Bonds,
1993, Series D (MBIA
Insured)
7 A- 400,000 The City of New York 97,600 128,500 -
General Obligation
Bonds, Fiscal 1993,
Series E
------------------ ------------------ ------------------ ------------------
$7,765,000 $7,296,218 $7,505,698 $425,465
================== ================== ================== ==================
</TABLE>
-14-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 127
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 2000
(Continued)
===================================
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings are
by Standard & Poor's Corporation, except for those indicated by an
asterisk (*), which are by Moody's Investors Service. Certain bond
ratings have changed since the Date of Deposit, at which time all such
bonds were rated A or better by either Standard & Poor's Corporation or
Moody's Investors Service.
(B) Bonds may be redeemable prior to maturity from a sinking fund (mandatory
partial redemption) (S.F.) or at the stated optional call (at the option
of the issuer) (Opt.) or by refunding. Certain bonds in the portfolio
may be redeemed earlier than dates shown in whole or in part under
certain unusual or extraordinary circumstances as specified in the terms
and provisions of such bonds. Single-family mortgage revenue bonds and
housing authority bonds are most likely to be called subject to such
provisions, but other bonds may have similar call features.
-15-
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series
PROSPECTUS, Part II
Note: Part II of this Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
Organization
The Trust is one of a Series of similar but separate unit
investment trusts. Each Trust was created under the laws of the State of New
York pursuant to a Trust Indenture and Agreement (the "Trust Agreement"), dated
the Date of Deposit as set forth in "Summary of Essential Financial Information"
in Part I of this Prospectus, among the Sponsors, the Trustee and the Evaluator.
The Bank of New York acts as successor Trustee of Series 1 through 22 and as
Trustee of Series 23 and subsequent Series. Interactive Data Corporation acts as
successor Evaluator for Series 1 through 90 and as Evaluator for Series 91 and
subsequent Series. Glickenhaus & Co. and Lebenthal & Co., Inc. act as
co-Sponsors for all Series (the "Sponsors").
On the date of this Prospectus, each Unit represented the
fractional undivided interest in the Trust set forth in Part I of this
Prospectus under "Summary of Essential Financial Information." Thereafter, if
any Units 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."
On the Date of Deposit for each Trust, the Sponsors deposited
with the Trustee obligations or contracts for the purchase of such obligations
(the "Bonds" or "Securities"). Certain of the Bonds may have been purchased at
prices which resulted in 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. Any gain other than any earned
original issue discount or accrued interest will be taxable, but that income
will not be realized until maturity, redemption or sale of the underlying Bonds
or Units.
Objectives
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. No assurance can be given that the Trust's
objectives will be achieved because these objectives are subject to the
continuing ability of the respective issuers of the bonds in the Portfolio to
meet their obligations and of the Insurer to meet its obligations under the
insurance. In addition, an investment in the Trust can be affected by interest
rate fluctuations.
Series 6 through 30 and Series 31 and subsequent Series have
obtained insurance guaranteeing the payment of principal and interest on the
Bonds in each respective Trust from MBIA Inc. and MBIA Insurance Corporation
("MBIA Corp."), respectively (MBIA Inc. and MBIA Corp. are collectively referred
to herein as the "Insurer"). Insurance obtained by the Trust applies only while
Bonds are retained in the Trust. Pursuant to irrevocable commitments of MBIA
Inc. and MBIA Corp., however, 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
NYC55/10858.5
<PAGE>
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 such Series 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. Insurance 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. Certain Bonds
in the Trust may also be insured under insurance obtained by the issuers of such
Bonds or third parties ("Pre-insured Bonds"). As a result of the insurance,
Moody's Investors Service, Inc. ("Moody's") has assigned a rating of "Aaa" to
all of the Bonds in the Trust, as insured, and Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"),
has assigned a rating of "AAA" to the Bonds while in the Trust. No
representation is made as to any insurer's ability to meet its commitments.
Insurance is not a substitute for the basic credit of an issuer, but supplements
the existing credit and provides additional security therefor. 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 pre-insured
by such Insurer. No premium will be paid by the Trust on Bonds pre-insured by
MBIA Inc. and MBIA Corp. See "Insurance on the Bonds."
Portfolio
In view of the Trust'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) availability of
insurance for the payment of principal and interest on the Bonds. 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."
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. Inflation and recession, as well
as measures implemented to address these and other economic problems, contribute
to fluctuations in interest rates and the value of fixed-rate bonds generally.
The Sponsors cannot predict future economic policies or their consequences nor,
therefore, can they predict the course or extent of such fluctuations in the
future.
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.
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
NYC55/10858.5
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<PAGE>
other major cities have developed financial and business capabilities which make
them less dependent on the specialized services traditionally available almost
exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, has contributed to
the decisions of some businesses and individuals to relocate outside, or not
locate within, the State.
Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.4
million, is an international center of business and culture. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. Manufacturing activity in the City is conducted primarily in
apparel and printing.
For each of the 1981 through 1999 fiscal years, the City had an
operating surplus, before discretionary transfers, and achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP"), after discretionary transfers. The City
has been required to close substantial gaps between forecast revenues and
forecast expenditures in order to maintain balanced operating results. There can
be no assurance that the City will continue to maintain balanced operating
results as required by State law without tax or other revenue increases or
reductions in City services or entitlement programs, which could adversely
affect the City's economic base.
As required by law, the City prepares a four-year annual financial
plan, which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections and outlines proposed gap-
closing programs for years with projected budget gaps. The City's current
financial plan projects a surplus in the 2000 and 2001 fiscal years, before
discretionary transfers, and budget gaps for each of the 2002, 2003 and 2004
fiscal years. This pattern of current year surplus operating results and
projected subsequent year budget gaps has been consistent through the entire
period since 1982, during which the City has achieved surplus operating results,
before discretionary transfers, for each fiscal year.
The City depends on aid from the State both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected; that, in future years, State budgets will be adopted by the
April 1 statutory deadline, or interim appropriations will be enacted; or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures. In addition, the Federal budget negotiation process could
result in a reduction in or a delay in the receipt of Federal grants which could
have additional adverse effects on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's financial plan,
including the City's current financial plan for the 2000 through 2004 fiscal
years (the "2000-2004 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Such
assumptions and contingencies include the condition of the regional and local
economies, the provision of State and Federal aid and the impact on City
revenues and expenditures of any future Federal or State policies affecting the
City.
Implementation of the Financial Plan is dependent upon the City's
ability to market its securities successfully. The City's program for financing
capital projects for fiscal years 2000 through 2004 contemplates the
NYC55/10858.5
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<PAGE>
issuance of $8.22 billion of general obligation bonds and $5.75 billion of bonds
to be issued by the New York City Transitional Finance Authority (the "Finance
Authority"). The City's financing program assumes the passage of legislation by
the State which was proposed by the City to increase the financing capacity of
the Finance Authority by $4 billion and assumes the effectiveness in fiscal year
2002 of a proposed State Constitutional amendment to increase the City's general
obligation debt limit. In addition, the Financial Plan anticipates access to
approximately $2.4 billion in financing capacity of Tobacco Settlement Asset
Securitization Corporation, Inc. ("TSASC"), which will issue debt secured by
revenues derived from the settlement of litigation with tobacco companies
selling cigarettes in the United States. The Finance Authority and TSASC were
created to assist the City in financing its capital program while keeping the
City's indebtedness within the forecast level of the constitutional restrictions
on the amount of debt the City is authorized to incur. 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, New York
City Municipal Water Finance Authority ("Water Authority"), Finance Authority,
TSASC and other bonds and notes will be subject to prevailing market conditions.
The City's planned capital and operating expenditures are dependent upon the
sale of its general obligation debt, as well as debt of the Water Authority,
Finance Authority and TSASC. Future developments concerning the City and public
discussion of such developments, as well as prevailing market conditions, may
affect the market for outstanding City general obligation bonds and notes.
The City Comptroller and other agencies and public officials, from time
to time, issue reports and make public statements which, among other things,
state that projected revenues and expenditures may be different from those
forecast in the City's financial plans.
For the 1999 fiscal year, the City had an operating surplus, before
discretionary and other transfers, and achieved balanced operating results,
after discretionary and other transfers, in accordance with GAAP. The 1999
fiscal year is the nineteenth year that the City has achieved an operating
surplus, before discretionary and other transfers, and balanced operating
results, after discretionary and other transfers.
On May 1, 2000, the City released the Financial Plan for the 2000
through 2004 fiscal years, which relates to the City and certain entities which
receive funds from the City, and which is based on the Executive Budget and
Budget Message for the City's 2001 fiscal year (the "Executive Budget") which
begins July 1, 2000. The Financial Plan is a modification to the financial plan
submitted to the Control Board on June 14, 1999 (the "June Financial Plan"),
which was subsequently modified in November 1999 and January 2000. The Financial
Plan projects revenues and expenditures for the 2000 and 2001 fiscal years 2002
through 2004, respectively, after implementation of a gap-closing program.
Changes since the June Financial Plan include: (i) an increase in
projected revenues of $1.6 billion, $1.2 billion, $1.1 billion, $1.3 billion and
$1.6 billion in fiscal years 2000 through 2004, respectively, reflecting
primarily increases in projected personal income, business, sales, real estate
transfer and mortgage recording tax revenues; (ii) a delay in the assumed
collection of $350 million of projected rent payments for the City's airports
from fiscal year 2001 to fiscal years 2002 through 2004; (iii) merit pay wage
increases for City employees of $30 million, $325 million, $750 million, $800
million and $800 million in fiscal years 2000 through 2004, respectively,
contingent upon productivity savings set forth in the gap-closing program; and
(iv) net expenditure savings of $518 million in fiscal year 2000, and net
expenditure increases of $555 million, $798 million, $1.0 bilion and $742
million in fiscal years 2001 through 2004, respectively, reflecting, among other
things, pension fund savings of $524 million, $284 million and $49 million in
fiscal years 2000 through 2002, respectively (resulting primarily from a market
value restart which has been approved by the trustees of one pension system but
is subject to approval by the trustees of the City's other pension systems and
the State Legislature), increased pension costs of $69 million and $7 million in
fiscal years 2003 and 2004, respectively, and increased spending for education
and other agencies.
The Financial Plan reflects discretionary transfers, for budget
stabilization purposes, including a discretionary transfer of $2.6 billion from
fiscal year 1999 to fiscal year 2000 primarily to pay debt service due in fiscal
year 2000, a proposed discretionary transfer from fiscal year 2000 to fiscal
year 2001 primarily to pay debt
NYC55/10858.5
-4-
<PAGE>
service due in fiscal year 2001 totaling $2.9 billion, a proposed discretionary
transfer from fiscal year 2001 to fiscal year 2002 to pay debt service due in
fiscal year 2002 totaling $1.2 billion and a proposed discretionary transfer
from fiscal year 2002 to fiscal year 2003 to pay debt service in fiscal year
2003 totaling $345 million.
In addition, the Financial Plan sets forth gap-closing actions to
eliminate a previously projected gap for the 2001 fiscal year and to reduce
projected gaps for fiscal years 2002 through 2004. The gap-closing actions for
the 2000 through 2004 fiscal years include: (i) additional agency actions
totaling $370 million, $466 million, $273 million, $273 million and $273 million
for fiscal years 2000 through 2004, respectively; (ii) assumed additional
Federal and State actions of $100 million in each of fiscal years 2001 through
2004, which are subject to Federal and State approval; and (iii) proposed
productivity savings and reducing fringe benefits costs totaling $250 million,
$265 million, $280 million and $300 million in fiscal years 2001 through 2004,
respectively, to partly offset the costs of the proposed merit pay program. The
Financial Plan also reflects a proposed tax reduction program totaling $364
million, $678 million, $816 million and $1.1 billion in fiscal years 2001
through 2004, respectively, including elimination of the commercial rent tax
over three years commencing June 1, 2000 at a cost of $97 million in fiscal year
2002, increasing to $430 million in fiscal year 2004; a 50% reduction in the 14%
personal income tax surcharge on July 1, 2000 at a cost of $329 million in
fiscal year 2001, increasing to $403 million in fiscal year 2004; the extension
of current tax reductions for owners of cooperative and condominium apartments
at an annual cost of approximately $200 million starting in fiscal year 2002;
and repeal of the $2 flat fee hotel occupancy tax effective December 1, 2000. It
can be expected that the Financial Plan will engender public debate which will
continue through the time the budget is scheduled to be adopted in June 2000.
The Financial Plan may be changed by the time the budget for fiscal year 2001 is
adopted.
Wage increases for City employees are provided for in the Financial
Plan through a merit pay plan for two years after their collective bargaining
agreements expire in fiscal years 2000 and 2001, contingent upon productivity
savings. The Financial Plan does not make any provision for wage increases
thereafter. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and other factors which could
have a material effect on the City.
The Financial Plan is based on numerous assumptions, including the
condition of the City's and the region's economies and modest employment growth
and the concomitant receipt of economically sensitive tax revenues in the
amounts projected. The 2000-2004 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent, if
any, to which wage increases for City employees exceed the annual wage costs
assumed for the 2000 through 2004 fiscal years; continuation of projected
interest earnings assumptions for pension fund assets and current assumptions
with respect to wages for City employees affecting the City's required pension
fund contributions; the willingness and ability of the State to provide the aid
contemplated by the Financial Plan and to take various other actions to assist
the City; the ability of City agencies to maintain balanced budgets; the
willingness of the Federal government to provide the amount of Federal aid
contemplated in the Financial Plan; the impact on City revenues and expenditures
of Federal and State welfare reform and any future legislation affecting
Medicare or other entitlement programs; adoption of the City's budgets by the
City Council in substantially the forms submitted by the Mayor; the ability of
the City to implement cost reduction initiatives, and the success with which the
City controls expenditures; the impact of conditions in the real estate market
on real estate tax revenues; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
On June 7, 1999, the City Council adopted a budget for fiscal year
2000. The adopted budget includes lower estimated debt service expenditures in
fiscal year 2000 resulting from a $456 million increase, from $2.1 billion to
$2.6 billion, in the proposed discretionary transfer in the 1999 fiscal year to
pay debt service due in fiscal year 2000. The $456 million increase in the
discretionary transfer reflects increased tax revenues and decreased
expenditures in the 1999 fiscal year. The adopted budget also includes $220
million of spending initiatives proposed by the City Council, other increased
spending and the net cost of revised tax reduction proposals, which
NYC55/10858.5
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<PAGE>
reflect the repeal of all of the City non-resident earnings tax and the
elimination of certain of the previously proposed tax reduction initiatives.
On July 16, 1998, Standard & Poor's revised its rating of City bonds
upward from BBB+ to A-. Moody's rating of City bonds was revised in February
1998 to A3 from Baa1. On March 8, 1999, Fitch revised its rating of City bonds
upward to A. Moody's, Standard & Poor's and Fitch currently rate the City's
outstanding general obligation bonds A3, A- and A, respectively.
New York State and its Authorities. The State ended the 1999-2000
fiscal year in balance on a cash basis, with a reported closing balance in the
General Fund of $1.17 billion, after reserving $3.97 billion in the tax refund
reserve account.
The State adopted the debt service portion of the State budget for the
2000-01 fiscal year on March 31, 2000. The remainder of the budget for the
State's 2000-01 fiscal year was adopted by the State Legislature on May 5, 2000,
35 days after the statutory deadline of April 1, 2000. The adopted budget
projects total General Fund spending of $38.9 billion, an increase of 4.7
percent. The State's adopted budget assumes continued growth could adversely
affect these projections. There can be no assurance that actual results will not
differ materially and adversely from the projections set forth in the State's
adopted budget projections. The State expects to produce revised financial plans
and its Annual Information Statement in the near future which will reflect the
adopted budget and other changes to its financial plan projections.
The State Financial Plan accompanying the Governor's 2000-01 Executive
Budget contained projections of potential imbalances in the 2001-02 fiscal year
of $1.23 billion and in the 2002-03 fiscal year of $2.65 billion, assuming
implementation of the 2000-01 Executive Budget recommendations and application
of tax reduction reserves used to offset costs in each of the 2001-02 and
2002-03 fiscal years, respectively. Preliminary analysis of the 2001-02
projection after adoption of the 2000-01 budget indicates that the State will
have a potential imbalance that is higher than the Executive Budget projection.
Standard & Poor's rates the State's general obligation bonds A+, and
Moody's rates the State's general obligation bonds A2. On November 9, 1999,
Standard & Poor's revised its rating on the State's general obligation bonds
from A to A+.
Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract claims. While
the ultimate outcome and fiscal impact, if any, on the State of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the State's ability to
carry out the State Financial Plan.
The City has estimated that its potential future liability on account
of outstanding claims against it as of June 30, 1999 amounted to approximately
$3.5 billion.
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. The
inclusion of unrated Bonds in certain Series of the Trust may result in less
flexibility in their disposal and a loss to the Trust upon their disposition.
Except as described in footnotes to "Summary of Essential Financial Information"
in Part I of this Prospectus, interest accrues to the benefit of Unit
NYC55/10858.5
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<PAGE>
holders commencing with the expected date of settlement for purchase of the
Units. Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any Security.
The following paragraphs discuss the characteristics of the
Bonds in the Trust and of certain types of issuers of the Bonds in the Trust.
See "Special Factors Concerning the Portfolio" in Part I of this Prospectus.
These paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payments 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, however, such changes should not adversely affect
the Trust's ultimate receipt of principal and interest or the Standard & Poor's
or Moody's ratings of the Bonds in the portfolio. 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 Series of the Trust may
contain Bonds in the portfolio that are, in whole or in part, subject to and
dependent upon (1) the governmental entity making appropriations from time to
time or (2) 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, certificate holders' 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 Series of the Trust may
contain Bonds in the portfolio that are secured by pledged revenues and
additionally by the so-called "moral obligation" 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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<PAGE>
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
Bond proceeds is 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
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.
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
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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 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 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.
--------
* For the 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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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.
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.
Other Revenue Bonds. Certain Series of the Trust may also
contain 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 Series of the Trust may also contain bonds that 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 fully
integrated with that of the mainland United States. During fiscal 1999,
approximately 87% of Puerto Rico's exports were to the United States mainland,
which was also the source of 60% of Puerto Rico's imports. In fiscal 1999,
Puerto Rico experienced a $9.6 billion positive adjusted merchandise trade
balance. The dominant sectors of the Puerto Rico economy are manufacturing and
services. Gross product in fiscal 1995 was $28.5 billion ($26.0 billion in 1992
prices) and gross product in fiscal 1999 was $38.2 billion ($29.8 billion in
1992 prices). This represents an increase in gross product of 34.4% from fiscal
1995 to 1999 (14.8% in 1992 prices).
Average employment increased from 1,051,000 in fiscal 1995, to
1,147,000 in fiscal 1999. Average unemployment decreased from 13.8% in fiscal
1995, to 12.5% in fiscal 1999, the lowest annual unemployment rate in more than
two decades. According to the Labor Department's Household Employment Survey,
during fiscal 1999, total employment increased 0.9% over fiscal 1998. Total
monthly employment averaged 1,147,000 in fiscal 1999, compared to 1,137,400 in
fiscal 1998. The seasonally adjusted unemployment rate for January 2000 was
11.9%. According to the Labor Department's Household Employment Survey, during
the first seven months of fiscal 2000, total employment increased 0.4% over the
same period in fiscal 1999. Total monthly employment averaged 1,138,600 during
the first seven months of fiscal 2000, compared to 1,134,400 in the same period
in fiscal 1999.
The Planning Board's gross product forecast for fiscal 2000,
made in October 1999, projected an increase of 2.7% over fiscal 1999 and an
increase of 2.3% for fiscal 2001. The performance of the economy during
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fiscal 2000 and 2001 will be effected principally by the performance of the
United States economy and by the increase in oil prices and, to a lesser extent,
by the level of interest rates. Since Puerto Rico is heavily dependent on oil
imports for its energy needs, if the level of oil prices remain at their current
high level of economic activity in Puerto Rico during the remainder of fiscal
2000 and during fiscal 2001.
Original Issue Discount Bonds and Zero Coupon Bonds
Certain Series of the Trust may contain 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
any current interest. For Federal income tax purposes, original issue discount
on tax-exempt bonds is treated as tax-exempt interest and must be accrued over
the term of the bonds. On sale or redemption, the excess of (1) the amount
realized (other than amounts treated as tax-exempt income as described below),
over (2) the tax basis of such bonds (properly adjusted, in the circumstances
described below, for accrual of original issue discount) will be treated as
taxable income or loss. Holders of tax-exempt obligations issued with original
issue discount, (including holders of Units in a trust such as the Trust), must
accrue tax-exempt original issue discount by using a constant interest method.
The basis of a tax-exempt obligation is increased by the amount of accrued
tax-exempt original issue discount. These provisions are applicable to
obligations issued after September 3, 1982 and acquired after March 1, 1984. The
Trust's tax basis in a Bond is increased by any accrued original issue discount,
as is a Unit holder's tax basis in its Units.
It is possible that additional Federal legislation will be
enacted or that existing legislation will be amended hereafter with the effect
that interest on the bonds becomes subject to Federal income taxation. If the
interest on the Bonds should ultimately be deemed to be taxable, the Sponsors
may instruct the Trustee to 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. 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 in the Trust have a bid side valuation higher than their par value,
redemption of such obligations at par would result in a loss of capital to a
purchaser of Units at the 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 "Special
Factors Concerning the Portfolio" in Part I of this Prospectus for information
for the number of bonds in the Portfolio that are original issue discount and
zero coupon bonds and "Portfolio Information" in Part I of this Prospectus 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". "The Portfolio" in Part I of this Prospectus
contains a listing of the sinking fund and call provisions, if any, with respect
to each of the Bonds therein.
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
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comprising the Trust's portfolio. The Sponsors are unable to predict 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 hereof in respect of any Securities which might
reasonably be expected to have a material adverse effect on the Trust, unless
otherwise stated in Part I of this Prospectus. At any time, however, 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 have given opinions to the issuing
authorities of each Bond on the date of issuance to the effect that such
Securities have been 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 Public Offering Price of the Units 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 the purpose of computing the
sales charge, Bonds are 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 computing the sales charge will
apply different sales charge rates to each Bond in the Trust depending on the
maturity of each Bond in accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Market Period
Sales Charge
Percentage
Percentage of of Net
Years to Maturity Per Bond Public Offering Price Amount Invested
-------------------------- --------------------- ---------------
<S> <C> <C>
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%
</TABLE>
A minimum sales charge of 1.0% of the Public Offering Price is
applied to all secondary market unit purchases. There is no reduction of the
sales charge for volume purchases in secondary market transactions.
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.
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 insurance obtained by the Trust. See
also
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"Rights of Unit Holders--Certificates" and "Rights of Unit Holders--Redemption"
for information relating to redemption of Units. The Evaluator will consider in
its evaluation of Defaulted Bonds which are covered by insurance obtained by the
Trust the value of the insurance guaranteeing interest and principal payments as
well as the market value of the Securities and the market value of similar
securities of issuers whose securities, if identifiable, carry identical
interest rates and maturities and are of creditworthiness comparable to the
issuer prior to the default or risk of default. If such other securities are not
identifiable, the Evaluator will compare prices of securities with substantially
identical interest rates and maturities and of a creditworthiness of minimum
investment grade. As to Series 18 and subsequent Series, 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 the Insurer to meet its commitments under the Trust's insurance
policy and, in the case of Series 18 and subsequent Series, MBIA Inc.'s or MBIA
Corp.'s commitment to issue Permanent Insurance. For a description of the
circumstances under which a full or partial suspension of the right of Unit
holders to redeem their Units may occur, see "Rights of Unit
Holders--Redemption."
It is the present intention of the Trustee (and, in the case
of Series 18 and subsequent Series, assuming the Trustee does not exercise the
right to obtain Permanent Insurance on any Defaulted Bonds), 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 other party, 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 the Insurer as long as the
Bond is held in the Trust.
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. In addition, on November 16, 1999, President Clinton
singed the Gramm-Leach- Bliley Act, repealing certain provisions of the
Glass-Steagall Act which had restricted affiliation between banks and securities
firms and amending the Bank Holding Company Act thereby removing restrictions on
banks and insurance companies. This new legislation grants banks new authority
to conduct certain authorized activity through financial subsidiaries.
Market for Units
Although they are not obligated to do so, the Sponsors have
maintained and intend to continue to maintain a market for the Units and to
continuously offer to purchase Units at prices based on the aggregate bid price
of the Securities. 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." 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
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the portfolio or of the Units of the Trust. In the event that a market is not
maintained for the Units, a Unit holder desiring to dispose of its 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 its 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."
Employees (and their immediate families) of the Sponsors may,
pursuant to employee benefit arrangements, purchase Units of the Trust at a
price equal to the bid side evaluation of the underlying securities in the
Trust, divided by the number of Units outstanding. 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 Sponsors are the sole underwriters of the Units. It is the
Sponsors' intention to effect a public distribution of the Units solely through
their own organizations. Units may, however, be sold to dealers who are members
of the National Association of Securities Dealers, Inc. at a discount. Such
discount is subject to change from time to time by the Agent for the Sponsors.
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.
It is the Sponsors' intention to continue to qualify Units of the Trust for sale
where such qualification is necessary. In maintaining a market for the Units
(see "Public Offering--Market for Units"), the Sponsors will 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 such Units (the Public Offering
Price described in the currently effective Prospectus which includes the sales
charge set forth in Part I of this Prospectus under "Summary of Essential
Financial Information") or the price at which they may redeem such Units (based
upon the aggregate bid side evaluation of the Securities), as the case may be,
and to the extent that 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 and information regarding estimated monthly and semi-annual
distributions of interest to Unit holders are set forth under "Summary of
Essential Financial Information" in Part I of this Prospectus.
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 I of this Prospectus
will be realized in the future.
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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 portfolio 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 I
of this Prospectus will be realized in the future.
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. As to each Trust, 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 respective standards which generally correspond
to the standards it has established for determining the insurability of new
issues of municipal bonds.
By the terms of its policy, the Insurer unconditionally
guarantees 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 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. The policy issued by the Insurer does not
guarantee payment on an accelerated basis, the payment of any redemption premium
or the value of the Units. The MBIA Inc. and MBIA Corp. policies also do 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. With respect to small issue industrial
development Bonds and pollution control revenue Bonds, however, MBIA Inc. and
MBIA Corp., respectively, guarantee the full and complete 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 policy issued by the Insurer 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 insurance policy relating to the Trust is non-cancelable
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. Failure to pay premiums on the 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.
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The policy issued by the Insurer shall terminate as to any
Bond which has been redeemed from 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 date of such sale occurs between a record
date and a date of payment of any such Bonds, any MBIA Inc. or MBIA Corp. policy
will terminate as to such Bond on the business day next succeeding such date of
payment. The termination of a MBIA Inc. or MBIA Corp. policy as to any Bond
shall not affect MBIA Inc.'s or MBIA Corp.'s obligations regarding any other
Bond in such Trust or any other Trust which has obtained a MBIA Inc. or MBIA
Corp. insurance policy. The policy issued by the Insurer 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 Bonds)
(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
such Series of 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 was
sold on an uninsured basis.
The Permanent Insurance premium with respect to each Bond 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.
Except as indicated below, insurance obtained by the Trust has
no effect on the price or redemption value of Units thereof. It 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 ("Defaulted
Bonds"). The value of the insurance will be equal to the difference between (1)
the market value of a Bond which is in default in payment of principal or
interest or a significant risk of 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 (2) the
market value of such Bonds not covered by Permanent Insurance. 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 MBIA Inc. or MBIA Corp. 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, as identified in the insurance
policy (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 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 (1) evidence of the Trust's right to receive
payment of such principal and interest and (2) 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.
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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.
MBIA Corp. 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 MBIA Corp. MBIA Corp. is a limited liability
corporation rather than a several liability association. MBIA Corp. is domiciled
in the State of New York and licensed to do business in and subject to
regulation under the laws of all 50 states, the District of Columbia, the
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands,
the Virgin Islands of the United States and the Territory of Guam.
As of December 31, 1999, MBIA Corp. had admitted assets of
$7.0 billion (audited), total liabilities of $4.6 billion (audited), and total
capital and surplus of $2.4 billion (audited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 2000, MBIA Corp. had admitted assets of $7.1
billion (unaudited), total liabilities of $4.7 billion (unaudited), and total
capital and surplus of $2.4 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. The address of MBIA Corp. is 113 King Street, Armonk, New York
10504.
As of the Evaluation Date, the claims-paying ability of MBIA
Corp. has been rated "AAA" by Standard & Poor's and "Aaa" by Moody's.
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.
The contract of insurance relating to the Trust and the
negotiations in respect thereof and certain agreements relating to Permanent
Insurance 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 MBIA Inc.
Although all issues contained in the portfolio of the Trust are individually
insured, neither the Trust, the Units nor the portfolio is insured directly or
indirectly by the Insurer.
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
"AAA" rating and/or Moody'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 and/or "Aaa" by Moody's, respectively) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's and/or "Aaa"
by Moody's, respectively.
Because the Securities are insured by the Insurer as to the
payment of principal and interest, Moody's has assigned a rating of "Aaa" to all
of the Bonds in the Trust, as insured, and Standard & Poor's has assigned its
"AAA" investment rating to the Units and Bonds in the Trust. See "Tax Exempt
Bond Portfolio" in Part I of this Prospectus. These ratings apply to the Bonds
only while they are held in the Trust. 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 or Moody's 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
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asset sales for less than the Trust's acquisition price will reduce payment to
the Unit holders of the interest or principal.
TAX STATUS (See also "Taxes" in Part I of this Prospectus)
This is a general discussion of some of the income tax
consequences of the ownership of the Units. It applies only to investors who
hold the Units as capital assets. It does not discuss rules that apply to
investors subject to special tax treatment, such as securities dealers,
financial institutions and insurance companies. Unit holders should consult
their tax advisors in determining the Federal, state, local and other tax
consequences of the purchase, ownership and disposition of Units.
In the opinion of bond counsel rendered at the time of
original issuance of the Bonds, interest income on the Bonds contained in the
Trust portfolio is excludable from gross income for regular Federal income tax
purposes under the Internal Revenue Code of 1954, as amended (the "1954 Code"),
or the Internal Revenue Code of 1986, as amended (the "Code"), depending upon
the date of issuance of the Bonds in any particular Series.
See "The Trust--Portfolio."
In the opinion of such bond counsel, an individual 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 such an individual will be subject to New York
State and (if a City resident), City tax, with respect to any gains realized
when Bonds or Units are sold, redeemed or paid at maturity. However, interest on
the Bonds may be subject to other state and local taxes. Interest on the Bonds
is not excludable from net income in determining New York State or New York City
franchise taxes on corporations or financial institutions. The Sponsors and
Paul, Hastings, Janofsky & Walker LLP have not made and will not make any review
of the procedures for the issuance of the Bonds or the basis for these opinions.
In the opinion of special counsel to the Sponsor, the Trust is
not treated as a separate taxable entity, and instead the Unit holders will be
treated for Federal income tax purposes as the owners of a pro rata portion of
the assets of the Trust. All income received by the Trusts will be reportable as
income of the Unit holders in accordance with their pro rata portion.
Gain (or loss) realized on a sale, maturity or redemption of
the Bonds or on a sale or redemption of a Unit is, however, includable 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, accrued
original issue discount or accrued market discount. 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.
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. Long-term capital gains realized by noncorporate
Unit holders on the disposition of Bonds or Units will be taxed at a maximum
federal income tax rate of 20% if the Unit and the Bonds have been held for more
than one year), whereas ordinary income and short-term capital gain received by
noncorporate Unit holders will be taxed at a maximum federal income tax rate of
39.6%. The deductibility of capital losses is limited to the amount of capital
gain; in addition, up to $3,000 ($1,500 for married persons filing separately)
of capital losses of non-corporate Unit holders may be deducted against ordinary
income. Since the proceeds from sales of Bonds, under certain circumstances, may
not be distributed, a Unit holder's taxable income for any year may exceed the
actual cash distributions to the Unit holder in that year.
Among other things, the Code provides for the following: (1)
interest on certain private activity bonds issued after August 7, 1986 is an
item of tax preference included in the calculation of the individual's
alternative minimum tax currently taxed at a rate of up to 28% and the corporate
alternative minimum tax currently
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at a rate of 20% (however, none of the Bonds in the Trust is a private activity
bond, the interest on which is subject to this alternative minimum tax); (2) 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 corporate alternative
minimum taxable income; (3) subject to certain exceptions, no financial
institution is allowed a deduction for the portion of the institution's interest
expense that is 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 is imposed on U.S. branches of
foreign corporations which 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 Code provides that a portion of social security benefits
is includable 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 $32,000 for a married couple filing a joint
return and zero for married persons filing separate returns and not living apart
at all times during the year, and $25,000 for all others. Interest on tax-exempt
bonds is added to adjusted gross income for purposes of determining whether an
individual's income exceeds the base amount described above.
In addition, certain S corporations, with accumulated earnings
and profits from years in which they were C corporations may be subject to tax
on 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 Federal income tax were or (with respect to "when, as and
if 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.
In the case of certain Bonds which may be included in the
Trust, the opinions of bond counsel indicate that, although interest on such
Bonds is generally exempt from Federal income tax, such Bonds are "industrial
development bonds" under the 1954 Code or are "private activity bonds" as that
term is defined in the Code (the following discussion also applies to Bonds that
are "industrial development bonds" as they are defined in the 1954 Code in terms
similar to those under which private activity bonds are defined in the Code and
are generally subject to the same limitations). Interest on private activity
bonds will not be exempt from 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 a related person to such a substantial user).
Interest attributable to such Bonds, if received by a Unit holder who is such a
substantial user or related person, will be taxable (i.e., not tax-exempt) to
the same extent as if such Bonds were held directly as owner, although interest
on those Bonds received by others would be tax-exempt.
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 activities 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.
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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 may be applicable for purposes of state and local
taxation. Investors with questions regarding this issue should consult 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 (and therefore the Unit holders), to
accrue tax-exempt original issue discount by using the constant interest method
provided for the holders of taxable obligations and to increase the basis of a
tax-exempt obligation by the amount of accrued tax-exempt original issue
discount. These provisions are applicable to obligations issued after September
3, 1982 and acquired after March 1, 1984. The Trust's tax basis in a Bond is
increased by any accrued original issue discount, as is a Unit holder's tax
basis in its Units. For tax-exempt Bonds issued on or 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.
If a Unit holder's tax cost for its pro rata interest in a
Bond exceeds its pro rata interest in the Bond's face amount, the Unit holder
will be considered to have purchased its pro rata interest in the Bond at a
"premium." The Unit holder will be required to amortize any premium relating to
its 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 this pro rata
interest in the Bond, but will not result in any deduction from the Unit
holder's income. Thus, for example, a Unit holder who purchases a 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.
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
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. 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.
In addition, the enactment of a "flat tax" or other legislation that
significantly alters the federal income tax system may have a material adverse
effect on the value of Units. If the interest on any Bonds in the Trust should
ultimately be deemed to be taxable, the Sponsors may instruct the Trustee to
sell such Bonds, and, since they would be sold as taxable securities, it is
expected that they would be sold at a substantial discount from current market
prices.
The U.S. Supreme Court held that there is no constitutional
prohibition against the federal government's taxing the interest earned on state
or other municipal bonds. The decision does not, however, affect the current
exclusion from gross income of the interest earned on the Bonds in the Trust.
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.
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RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units 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 applicable expenses and funds required for the
redemption of Units. See "Summary of Essential Financial Information" in Part I
of this Prospectus, "The Trust--Expenses and Charges" and "Rights of Unit
Holders--Redemption" in Part II.
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 of the Trust 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 I of this Prospectus. 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. 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.
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
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Certificate by May 15 of such year if the Unit holder desires to change its 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."
As of the fifteenth day of each month the Trustee will 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." 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."
Funds which are available for future 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 addition, because of the varying interest payment dates of the
Securities constituting the Trust portfolio, accrued interest at any point in
time 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 its Units, he will be entitled to receive its proportionate
share of the accrued interest from the purchaser of its Units. Similarly, if a
Unit holder redeems all or a portion of its 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. See "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit."
Expenses and Charges
Initial Expenses
All the expenses of creating and establishing the Trust for
Series 118 and prior Series have been borne by the Sponsors, including the cost
of the initial preparation, printing and execution of the Trust Agreement and
the certificates for Units, legal expenses, advertising and selling expenses,
expenses of the Trustee and other out-of-pocket expenses.
All or a portion of the expenses incurred in creating and
establishing the Trust for Series 119 and subsequent Series, 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, have been paid by the Trust. For Series 119 through 140 such expenses
will be amortized over a five year period. Organizational expenses for Series
141 and subsequent Series will be charged upon the investor's purchase of Units
during the initial offering period and will be paid at the close of the initial
offering period by the Trust. All advertising 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, Sponsor's and Evaluator's fees are set forth
under "Summary of Essential Financial Information" in Part I of this Prospectus.
The Sponsors' fee, if any, which is earned for portfolio supervisory
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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 in the "Summary of Essential Financial Information" in Part I of this
Prospectus, may exceed the actual costs of providing portfolio supervisory
services for a particular Series, but at no time will the total amount received
by the Sponsors 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" in Part I of this Prospectus. 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." 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."
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." If the balances
in the Principal and Interest Accounts are insufficient to provide for amounts
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 insurance obtained by the Trust as set forth
under "Summary of Essential Financial Information" in Part I of this Prospectus
is based on the aggregate amount of Bonds in the Trust as of the date of such
information. The premium, which is an obligation of each respective Trust, is
payable monthly by the Trustee on behalf of the Trust. As Securities in the
portfolio of the Trust 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 Corp. Pre-insured Bonds or MBIA Inc. 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
that 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.
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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 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, 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, certificates issued or held, a current list of
Securities in the portfolio of 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 canceled.
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." 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.
By the third business day following such tender, the Unit
holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in Part I of this Prospectus under "Summary of Essential Financial
Information" as of the next subsequent
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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."
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, 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 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 exercise the right to 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" 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 (assuming, in the case of Series 18 and subsequent Series,
that the Trustee does not exercise the right to obtain Permanent Insurance on
Defaulted Bonds), 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 portfolio 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, as of the Evaluation
Time stated under "Summary of Essential Financial Information" in Part I of this
Prospectus on the day any such determination is made. The 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, and (3) accrued and unpaid
interest on the Securities as of the date of computation, less
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(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 (i) on the basis of current
bid prices for the Securities, (ii) if bid prices are not available for any
Securities, on the basis of current bid prices for comparable bonds, (iii) by
appraisal, or (iv) 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--Market for
Units."
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." 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." 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.
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 "Trust") are offering Unit holders of
those Series of the Trust for which the Sponsors are maintaining a secondary
market an option to exchange a Unit of any Series of the Trust for a Unit of a
different Series of the Trust 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--Market 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
its 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 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 that 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 its Units without further instructions from the Unit holder.
Unit holders are urged to consult their 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 income tax and/or New York City income tax, 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 advisor 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
such Participant by the Plan Agent indicating distributions and shares (or
fractions thereof) of the Empire Builder purchased on its 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 its
participation in the Plan and receive future distributions on its 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, request a copy of the Empire Builder Prospectus from The
Bank of New York, Unit Investment Trust, P.O. Box 972, New York, New York
10269-0067. 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 who receive distributions from the Trust on a semi-annual
basis 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, A, 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 who receives distributions from the Trust on
a semi-annual basis 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 Unit
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 its 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
its participation in the Plan and receive future distributions on its 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 or modify 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, request a copy of the Bond Fund Prospectus from
The Bank of New York, Unit Investment Trust, P.O. Box 972, New York, New York
10269-0067. Read it carefully before you decide to participate.
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<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State
Municipal Exempt Trust, Series 10 and all subsequent Series, including all
Guaranteed 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 Glickenhaus Value Portfolios and 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. The principal offices of Glickenhaus are located
at 6 East 43rd Street, New York, New York 10017.
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 74 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 for 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. The principal offices of Lebenthal are located at 120
Broadway, New York, New York 10271.
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 or gross negligence. See "The Trust--Portfolio" and
"Sponsors--Responsibility."
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 may
not be 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 that the Trustee
does not exercise the right to obtain Permanent Insurance on a Defaulted Bond or
Bonds, 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 portfolio 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. As to Series 18 and subsequent
Series, in the event that 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
partial suspension of the right of Unit holders to redeem their Units. See
"Rights of Unit Holders--Redemption." The Sponsors are empowered, but not
obligated, to direct the Trustee to dispose of Bonds in the event of advance
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
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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 with 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, 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."
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
a Trust would be detrimental to the interest of the Unit holders. The proceeds
from any such sales will be credited to the Principal Account of the affected
Trust 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 with respect to a 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 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 not disposed of at the date of termination will ultimately be
distributed to Unit holders of record as of such date 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" in Part I of this Prospectus.
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of
Essential Information" in Part I of this Prospectus has been appointed by the
other Sponsor as agent for purposes of taking action under the Trust Agreement.
In those Trusts for which there is a sole Sponsor, references herein to the
Agent for Sponsors shall be deemed to refer to such sole Sponsor. 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
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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 Sponsor acts 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 the 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, 1999, the total partners' capital of
Glickenhaus was $198,463,739 (audited); and at March 31, 2000, the total
stockholders' equity of Lebenthal was $7,122,259 (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, (800) 221-7771. 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 corporation organized under the laws of the United States or
the State of New York, 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 and its principal office and place
of business in the Borough of Manhattan, New York City. The duties of the
Trustee are primarily ministerial in nature. The Trustee did not participate in
the selection of Securities for the portfolio of any Series of the Trust.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of the disposition of any moneys,
Securities or certificates or in respect of any evaluation or for any action
taken in good faith reliance on prima facie properly executed documents except
in cases of 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."
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."
NYC55/10858.5
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<PAGE>
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, in the case of Series 11 and subsequent
Series, 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
The Evaluator is Interactive Data Corporation, a Delaware
corporation, with main offices at 100 Williams Street, New York, New York 10014.
Interactive Data Corporation is a wholly owned subsidiary of Data Broadcasting
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 the Unit holders for errors in judgement. 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.
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."
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
NYC55/10858.5
-31-
<PAGE>
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 a 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 the 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 of Deposit, whichever is lower, at which time the Trust may
be terminated (i) by the consent of the holders of 66-2/3% of the Units or (ii)
by the Trustee; provided, however, that upon affirmative written notice of their
opportunity to object to such termination and to the Sponsors and the holders of
at least 33-1/3% of the Units do not 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 I of this Prospectus under "Summary of
Essential Financial Information"; provided, however, that prior to the Mandatory
Termination 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 of the affected Trust. 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 its certificate for Units,
its pro rata share of the balances remaining in the Interest and Principal
Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters have been passed upon by Brown & Wood,
One World Trade Center, New York, New York 10048, as special counsel for the
Sponsors as to Series 9 through 64, and by Battle Fowler LLP, 75 East 55th
Street, New York, New York 10022, as special counsel for the Sponsors as to
Series 65 through 152 of Empire State Municipal Exempt Trust, Guaranteed Series.
Upon completion of its combination with Battle Fowler LLP, Paul, Hastings,
Janofsky & Walker LLP currently acts as special counsel for the Sponsors.
Winston & Strawn, 200 Park Avenue, New York, New York 10016, acts as counsel for
the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of
this Prospectus have been audited by BDO Seidman LLP, independent certified
public accountants, as stated in their report with respect thereto, and are
included therein in reliance upon such report given upon their authority as
experts in accounting and auditing.
DESCRIPTION OF BOND RATINGS
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.
NYC55/10858.5
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<PAGE>
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 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 its own judgment with respect to such
likelihood and risk.
NO: 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.
NYC55/10858.5
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<PAGE>
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 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 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.
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 bonds are 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.
NYC55/10858.5
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<PAGE>
<TABLE>
------------------------------------------------------
<S> <C>
This Prospectus does not contain all of the information with
respect to the Trust set forth in its registration statements
filed with the Securities and Exchange Commission, Washington, D.C. EMPIRE STATE
under the Securities Act of 1933 and the Investment Company Act MUNICIPAL EXEMPT TRUST
of 1940, and to which reference is hereby made. Information may
be reviewed and copied at the Commission's Public Reference
Room, and information on the Public Reference Room may be
obtained by calling the SEC at 1-202-942-8090. Copies may be GUARANTEED SERIES
obtained from the SEC by:
o electronic request (after paying a duplicating fee) at the
following e-mail address: [email protected] PROSPECTUS, PART II
------------------
o visiting the SEC internet address: http://www.sec.gov.
-------------------
o writing: Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549-6009
Sponsors:
-------------------------------------------------------
INDEX GLICKENHAUS & CO.
------------------------------------------------------- 6 East 43rd Street
New York, New York 10017
(212) 953-7532
Page
----
THE TRUST................................................1 LEBENTHAL & CO., INC.
120 Broadway
PUBLIC OFFERING.........................................15 New York, New York 10271
(212) 425-6116
ESTIMATED CURRENT RETURN AND ESTIMATED
LONG-TERM RETURN TO UNIT HOLDERS...................17
INSURANCE ON THE BONDS..................................15
TAX STATUS..............................................18
RIGHTS OF UNIT HOLDERS..................................21
AUTOMATIC ACCUMULATION ACCOUNT..........................27
SPONSORS................................................28
TRUSTEE.................................................30
EVALUATOR...............................................31
AMENDMENT AND TERMINATION OF THE TRUST
AGREEMENT..........................................31
LEGAL OPINIONS..........................................32
AUDITORS................................................32
DESCRIPTION OF BOND RATINGS.............................32
-----------------------------------------------------------
No person is authorized to give any information or to make
any representations with respect to this Trust, not
contained in this Prospectus and you should not rely on any
other information. The Trust is registered as a unit
investment trust under the Investment Company Act of 1940.
Such registration does not imply that the Trust or any of
its Units have been guaranteed, sponsored, recommended or
approved by the United States or any other state or any
agency or office thereof.
----------------------------------------------------------- ------------------------------------------------------
</TABLE>
NYC55/10858.5
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
Prospectus, Part I 8,342 Units Dated: July 28, 2000
NOTE: Part I of this Prospectus may not be distributed unless
-------------------------------------------------------------
accompanied by Part II.
-----------------------
This Prospectus consists of two parts. The first part contains a
"Summary of Essential Financial Information" on the reverse hereof as of April
28, 2000 and a summary of additional specific information including "Special
Factors Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of March 31, 2000. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, 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 and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited in
the portfolio of the Trust are sometimes referred to herein as the "Securities."
Insurance guaranteeing the payment of principal and interest on the Securities
while in the Trust has been obtained by the Trust from the Insurer as set forth
in Part II under "Insurance on the Bonds." Such insurance does not guarantee the
market value of the Securities or the Units offered hereby. The payment of
interest and the preservation of principal are, of course, dependent upon the
continuing ability of the issuers of the Bonds and any other insurer to meet
their obligations.
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights of
Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid
price of the Securities in the Trust divided by the number of Units outstanding,
plus a sales charge determined on the basis of the maturities of the Securities
in the Trust. See "Public Offering -- Offering Price" in Part II of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do
so, intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering --
Market for Units." 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 underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should 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 SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 128
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 28, 2000
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: INTERACTIVE DATA CORPORATION
<TABLE>
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 8,460,000
Number of Units(1): 8,342
Fractional Undivided Interest in the Trust Per Unit: 1/8,342
Total Value of Securities in the Portfolio (Based on Bid Side Evaluations of Securities): $8,177,857.18
===================
Sponsors' Repurchase Price Per Unit: $ 980.33
Plus Sales Charge(2): 47.28
-------------------
Public Offering Price Per Unit(3): $ 1,027.61
===================
Redemption Price Per Unit(4): $ 980.33
Excess of Public Offering Price Over Redemption Price Per Unit: $ 47.28
Weighted Average Maturity of Bonds in the Trust: 22.267 years
</TABLE>
<TABLE>
<S> <C>
Evaluation Time: 2:00 p.m., New York Time, on the day next following receipt by a Sponsor of an
order for a Unit sale or purchase or by the Trustee of a Unit tendered for
redemption.
Annual Insurance Premium: $845
Evaluator's Fee: $.55 for each issue of Bonds in the Trust for each daily valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.39 under the monthly
and $.99 under the semi-annual distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount of underlying securities.
Date of Deposit: June 13, 1996
Date of Trust Agreement: June 13, 1996
Mandatory Termination Date: December 31, 2045
Minimum Principal
Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000
</TABLE>
-2-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 128
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 28, 2000
(Continued)
<TABLE>
<CAPTION>
Monthly Semi-annual
------------------- -------------------
<S> <C> <C>
P Estimated Annual Interest Income: $57.57 $57.57
Less Annual Premium on Portfolio Insurance .10 .10
E Less Estimated Annual Expenses 3.36 2.68
------------------- -------------------
R Estimated Net Annual Interest Income: $54.11 $54.79
=================== ===================
U Estimated Interest Distribution: $ 4.50 $27.39
N Estimated Current Return Based on Public Offering Price (4): 5.27% 5.33%
I
Estimated Long-Term Return Based on Public Offering Price (5): 5.20% 5.26%
T
Estimated Daily Rate of Net Interest Accrual: $.15031 $.15219
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>
1. The number of units are expressed in whole numbers with no adjustment for
fractional units.
2. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
3. Plus accrued interest to May 3, 2000, the expected date of settlement, of
$2.73 monthly and $25.75 semi-annually.
4. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
5. 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
Trustee 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 "Tax Status" and "Estimated Current Return and Estimated
Long-Term Return to Unit Holders" in Part II of this Prospectus.
6. 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. See "Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in Part II
of this Prospectus.
<PAGE>
Portfolio Information
---------------------
On March 31, 2000, the bid side valuation of 35.0% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par and
65.0% was at a premium over par. See Note (B) to "Tax-Exempt Bond Portfolio" for
information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
----------------------------------------
The Portfolio consists of 7 issues of Bonds issued by entities located in New
York or certain United States territories or possessions. The following
information is being supplied to inform Unit holders of circumstances affecting
the Trust. 100% 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 the
purpose of issue are as follows: Revenue: Health Care, 3 (38.0%); Housing, 1
(20.8%); Water and Sewer, 1 (15.8%); and Transportation, 2 (25.4%). The Trust is
deemed to be concentrated in the Health Care and Transportation Bond categories
(1). Five issues, constituting of the Bonds in the Portfolio, are original issue
discount bonds, of which one is a zero coupon bond. On March 31, 2000, 6 issues
(80.4%) were rated AAA by Standard & Poor's Corporation (2). One issue was
partially refunded. The partially refunded issue (19.6)% was rated AAA by
Standard and Poor's Corporation. Subsequent to such date, such ratings may have
changed. See "Tax-Exempt Bond Portfolio." For a more detailed discussion, it is
recommended that Unit holders consult the official statements for each Security
in the Portfolio of the Trust.
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
-- Portfolio" in Part II of this Prospectus.
----------
1 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 II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part II
of this Prospectus.
-4-
<PAGE>
Taxes
-----
Interest on the Bonds in the Trust Portfolio is generally exempt from regular
federal income tax. It is also generally exempt from New York State and New York
City personal income taxes. Bond counsel to the issuing governmental authorities
delivered their opinions confirming the tax exempt status of the interest on the
dates of issuance of the Bonds. See "The Trust - Portfolio" in Part II of this
Prospectus.
Gain or loss realized on a sale, maturity or redemption of the Bonds by the
Trust or on a sale or redemption of a Unit by a Unit Holder must be taken into
account for federal, state and local income tax purposes. It will be capital
gain or loss if the Units are held as capital assets and will be long-term if
the Units (and the Bonds) have been held for more than one year. The gain or
loss on disposition does not include any amount received that is attributable to
accrued interest or earned original issue discount (which is generally treated
as tax exempt interest) or any accrued market discount (which is treated as
ordinary income). Long-term capital gains realized by noncorporate taxpayers are
taxed at a maximum federal income tax rate of 20% while ordinary income and
short-term capital gains received by noncorporate taxpayers will be taxed at
regular federal income tax rates of up to 39.6%.
-5-
<PAGE>
INDEPENDENT AUDITORS' REPORT
============================
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 128:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 128, including the bond portfolio, as
of March 31, 2000, and the related statements of operations and changes in net
assets for the years ended March 31, 2000, 1999 and 1998. These financial
statements are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. Our procedures included
confirmation of securities owned as of March 31, 2000, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 128 as of March 31, 2000, and the results of its
operations and changes in net assets for the years ended March 31, 2000, 1999
and 1998, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 28, 2000
-6-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
STATEMENT OF NET ASSETS
MARCH 31, 2000
===================================
<TABLE>
<S> <C>
INVESTMENTS IN SECURITIES, at market value (cost $8,062,555)........................................ $8,388,182
ACCRUED INTEREST RECEIVABLE......................................................................... 136,282
ORGANIZATION COSTS, net of amortization 5,291
-----------------
Total trust property............................................................................. 8,529,755
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES....................................................... 130,560
-----------------
NET ASSETS.......................................................................................... $8,399,195
=================
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
--------------- --------------- ---------------
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED INTERESTS........................ $4,882,222 $3,413,595 $8,295,817
UNDISTRIBUTED NET INVESTMENT INCOME............................ 32,851 70,527 103,378
--------------- --------------- ---------------
Total value................................................. $4,915,073 $3,484,122 $8,399,195
=============== =============== ===============
UNITS OUTSTANDING.............................................. 4,930 3,447 8,377
=============== =============== ===============
VALUE PER UNIT................................................. $ 996.97 $ 1,010.77
=============== ===============
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
STATEMENTS OF OPERATIONS
===================================
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------------------------------
2000 1999 1998
--------------------- --------------------- --------------------
INVESTMENT INCOME - INTEREST............................ $512,411 $548,712 $ 570,950
--------------------- --------------------- --------------------
<S> <C> <C> <C>
EXPENSES:
Trustee fees......................................... 14,836 15,188 15,133
Evaluation fees...................................... 1,228 1,071 1,046
Insurance premiums................................... 845 933 1,000
Sponsors' advisory fees.............................. 2,405 2,815 2,148
Auditors' fees....................................... 1,952 1,955 1,800
Amortization of organization costs................... 4,400 4,400 4,400
--------------------- --------------------- --------------------
Total expenses............................ 25,666 26,362 25,527
--------------------- --------------------- --------------------
NET INVESTMENT INCOME................................... 486,745 522,350 545,423
REALIZED GAIN ON SECURITIES SOLD OR REDEEMED (Note 3)... 52,868 73,279 1,725
NET CHANGE IN UNREALIZED MARKET (DEPRECIATION)
APPRECIATION ........................................ (611,557) 129,832 635,003
--------------------- --------------------- --------------------
NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS........................................... $ (71,944) $725,461 $1,182,151
===================== ===================== ====================
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
STATEMENTS OF CHANGES IN NET ASSETS
===================================
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income................................. $ 486,745 $ 522,350 $ 545,423
Realized gain on securities sold or redeemed.......... 52,868 73,279 1,725
Net change in unrealized market (depreciation)
appreciation....................................... (611,557) 129,832 635,003
------------------ ------------------ ------------------
Net (decrease) increase in net assets resulting from
operations....................................... (71,944) 725,461 1,182,151
------------------ ------------------ ------------------
DISTRIBUTIONS TO UNIT HOLDERS OF NET INVESTMENT INCOME... (493,202) (536,249) (545,590)
------------------ ------------------ ------------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 733; 690 and 148 units................. (725,011) (726,611) (152,881)
------------------
------------------ ------------------
NET INCREASE (DECREASE) IN NET ASSETS.................... (1,290,157) (537,399) 483,680
NET ASSETS:
Beginning of year..................................... 9,689,352 10,226,751 9,743,071
------------------ ------------------ ------------------
End of year........................................... $ 8,399,195 $ 9,689,352 $10,226,751
================== ================== ==================
DISTRIBUTION PER UNIT (Note 2):
Interest:
Monthly plan....................................... $54.27 $54.80 $54.72
Semi-annual plan................................... $55.01 $55.25 $55.24
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
NOTES TO FINANCIAL STATEMENTS
===================================
NOTE 1 - ACCOUNTING POLICIES
----------------------------
General
-------
The Trust is registered under the Investment Company Act of 1940.
Securities
----------
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on trade
date. The difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Realized gains (losses) from
securities transactions are determined on the basis of average cost of the
securities sold or redeemed. Interest income and expenses are recognized on the
accrual basis.
Taxes on income
---------------
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Per unit amounts
----------------
Per unit amounts reflected in the accompanying financial statements
are expressed in whole numbers with no adjustment for fractional interests.
Organization costs
------------------
Costs incurred in the organization of the Trust have been
capitalized and are amortized over a period of 60 months beginning on the date
of deposit.
NOTE 2 - DISTRIBUTIONS
----------------------
Interest received by the Trust is distributed to Unit holders
either semi-annually on the first day of June and December or, if elected by the
Unit holder, on the first day of each month, after deducting applicable
expenses. No principal distributions, resulting from the sale or redemption of
securities, were made in the year ended March 31, 2000, 1999 and 1998.
-10-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
NOTES TO FINANCIAL STATEMENTS
(Continued)
===================================
<TABLE>
<CAPTION>
NOTE 3 - BONDS SOLD OR REDEEMED
-------------------------------
Portfolio Principal Date Realized
No. Amount Redeemed Description Net Proceeds Cost Gain
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year ended March 31, 2000:
4 $ 95,000 4/8/99 New York State Medical Care Facilities $105,118 $ 94,050 $11,068
Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds,
1995, Series A (MBIA Insured)
4 90,000 6/4/99 New York State Medical Care Facilities 97,740 89,100 8,640
Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds,
995, Series A (MBIA Insured)
4 50,000 8/27/99 New York State Medical Care Facilities 53,780 49,500 4,280
Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds,
1995, Series A (MBIA Insured)
4 35,000 10/7/99 New York State Medical Care Facilities 37,362 34,650 2,712
Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds,
1995, Series A (MBIA Insured)
4 35,000 11/4/99 New York State Medical Care Facilities 36,750 34,650 2,100
Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds,
1995, Series A (MBIA Insured)
4 40,000 12/8/99 New York State Medical Care Facilities 42,000 39,600 2,400
Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds,
1995, Series A (MBIA Insured)
4 105,000 2/4/00 New York State Medical Care Facilities 110,303 103,950 6,353
Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds,
1995, Series A (MBIA Insured)
2 15,000 3/31/00 Metropolitan Transportation Authority, 15,675 14,985 690
Commuter Facilities Revenue Bonds, Series
1996A (FGIC Insured)
4 225,000 3/31/00 New York State Medical Care Facilities 237,375 222,750 14,625
Finance Agency, Mental Health Services
Facilities Improvement Revenue Bonds,
1995, Series A (MBIA Insured)
--------------- ------------- ------------- -------------
$690,000 $736,103 $683,235 $52,868
=============== ============= ============= =============
</TABLE>
-11-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
NOTES TO FINANCIAL STATEMENTS
(Concluded)
===================================
<TABLE>
<CAPTION>
NOTE 4 - NET ASSETS
-------------------
<S> <C>
Cost of 10,000 units at Date of Deposit $ 9,986,930
Less gross underwriting commission 489,400
------------------
Net cost - initial offering price 9,497,530
Realized net gain on securities sold or redeemed 128,372
Redemption of 1,623 units (1,655,712)
Unrealized market appreciation of securities 325,627
Undistributed net investment income 103,378
------------------
Net assets $ 8,399,195
==================
</TABLE>
NOTE 5 - SUBSEQUENT EVENT
-------------------------
On April 1, 2000, a monthly income distribution of $4.56 per unit
was paid to all monthly distribution plan Unit holders of record March 15, 2000.
-12-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 2000
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Title of Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Bond Rate (Note B) (Note B)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $1,785,000 State of New York Mortgage 6.450% 10/01/17 04/01/10 @ 100 S.F.
Agency, Homeowner 09/01/04 @ 102 Opt.
Mortgage Revenue Bonds,
Series 43 (MBIA Insured)
2 AAA 1,675,000 Metropolitan Transportation 6.100 07/01/26 07/01/22 @ 100 S.F.
Authority, Commuter 07/01/06 @ 102 Opt.
Facilities Revenue
Bonds, Series 1996A
(FGIC Insured)
3 AAA 2,000,000 Dormitory Authority of the 6.050 08/01/35 02/01/22 @ 100 S.F.
State of New York, 08/01/05 @ 102 Opt.
Resurrection Rest Home,
FHA-Insured Mortgage,
Nursing Home Revenue
Bonds, Series 1995 (MBIA
Insured)
</TABLE>
<TABLE>
<CAPTION>
Port- Aggregate Market Value as
folio Rating Principal Name of Issuer and Title of Cost of Bonds to of March 31, Annual Interest
No. (Note A) Amount Bond Trust 2000 Income to Trust
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $1,785,000 State of New York Mortgage $1,820,700 $1,866,039 $115,133
Agency, Homeowner
Mortgage Revenue Bonds,
Series 43 (MBIA Insured)
2 AAA 1,675,000 Metropolitan Transportation 1,673,325 1,806,538 102,175
Authority, Commuter
Facilities Revenue
Bonds, Series 1996A
(FGIC Insured)
3 AAA 2,000,000 Dormitory Authority of the 1,990,000 2,020,440 121,000
State of New York,
Resurrection Rest Home,
FHA-Insured Mortgage,
Nursing Home Revenue
Bonds, Series 1995 (MBIA
Insured)
</TABLE>
-13-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 2000
(Continued)
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Title of Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Bond Rate (Note B) (Note B)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4 AAA $ 100,000 New York State Medical Care 6.000% 02/15/25 02/15/16 @ 100 S.F.
Facilities Finance 02/15/05 @ 102 Opt.
Agency, Mental Health
Services Facilities
Improvement Revenue
Bonds, 1995, Series A
(MBIA Insured)
5 AAA 1,350,000 New York City Municipal 5.750 06/15/26 06/15/21 @ 100 S.F.
Water Finance Authority, 06/15/06 @ 101 Opt.
Water and Sewer System
Revenue Bonds, Fiscal
1996, Series B (MBIA
Insured)
6 AAA 1,150,000 Dormitory Authority of the 5.600 08/01/25 02/01/13 @ 100.S.F.
State of New York, Ellis 08/01/05 @ 102 Opt.
Hospital, FHA-Insured
Mortgage Hospital
Revenue Bonds,
Series 1995 (MBIA
Insured)
</TABLE>
<TABLE>
<CAPTION>
Port- Aggregate Market Value as
folio Rating Principal Name of Issuer and Title of Cost of Bonds to of March 31, Annual Interest
No. (Note A) Amount Bond Trust 2000 Income to Trust
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4 AAA $ 100,000 New York State Medical Care $ 99,000 $ 100,985 $ 6,000
Facilities Finance
Agency, Mental Health
Services Facilities
Improvement Revenue
Bonds, 1995, Series A
(MBIA Insured)
5 AAA 1,350,000 New York City Municipal 1,289,250 1,335,555 77,625
Water Finance Authority,
Water and Sewer System
Revenue Bonds, Fiscal
1996, Series B (MBIA
Insured)
6 AAA 1,150,000 Dormitory Authority of the 1,072,030 1,115,155 64,400
State of New York, Ellis
Hospital, FHA-Insured
Mortgage Hospital
Revenue Bonds,
Series 1995 (MBIA
Insured)
</TABLE>
-14-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 128
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 2000
(Continued)
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Title of Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Bond Rate (Note B) (Note B)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7 AAA $ 500,000 Triborough Bridge and 0.000% 01/01/21 No Sinking Fund
Tunnel Authority, No Optional Call
General Purpose Revenue
Bonds, Series 1993B
(MBIA Insured)
------------------
$8,560,000
------------------
</TABLE>
<TABLE>
<CAPTION>
Port- Aggregate Market Value as
folio Rating Principal Name of Issuer and Title of Cost of Bonds to of March 31, Annual Interest
No. (Note A) Amount Bond Trust 2000 Income to Trust
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
7 AAA $ 500,000 Triborough Bridge and $ 118,250 $ 143,470 $ -
Tunnel Authority,
General Purpose Revenue
Bonds, Series 1993B
(MBIA Insured)
------------------ ------------------ ------------------ -------------------
$8,560,000 $8,062,555 $8,388,182 $486,333
------------------ ================== ================== ===================
</TABLE>
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings are
by Standard & Poor's Corporation, except for those indicated by an
asterisk (*), which are by Moody's Investors Service. Certain bond
ratings have changed since the Date of Deposit, at which time all such
bonds were rated A or better by either Standard & Poor's Corporation or
Moody's Investors Service.
(B) Bonds may be redeemable prior to maturity from a sinking fund (mandatory
partial redemption) (S.F.) or at the stated optional call (at the option
of the issuer) (Opt.) or by refunding. Certain bonds in the portfolio
may be redeemed earlier than dates shown in whole or in part under
certain unusual or extraordinary circumstances as specified in the terms
and provisions of such bonds. Single-family mortgage revenue bonds and
housing authority bonds are most likely to be called subject to such
provisions, but other bonds may have similar call features.
-15-
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Form S-6 Registration Statement of Empire State Municipal Exempt
Trust, Guaranteed Series 133).
The Prospectus.
Signatures.
Written Consent of the following persons:
Consents of Independent Auditors.
Consent of Counsel (previously filed)
Consent of the Evaluator including Confirmation of Ratings
(included in Exhibit 99.5.1).
The following exhibits:
*99.5.1 -- Consent of the Evaluator including Confirmation of Ratings.
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. 333-89553 of Empire State
Municipal Exempt Trust, Guaranteed Series 149 on December 9,
1999 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 Amendment No. 1 to Form
S-6 Registration Statement No 333-42455 of Empire State
Municipal Exempt Trust, Guaranteed Series 140 on May 18,
1998 and incorporated herein by reference).
--------
* Being filed by this Amendment.
II-1
NYC55/9344.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 127 and
Guaranteed Series 128 certify that they have met all of the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933. The registrants have
duly caused this Post-Effective Amendment to the Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 28th day of July, 2000.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 127
AND GUARANTEED SERIES 128
(Registrants)
GLICKENHAUS & CO.
(Depositor)
By: /s/ Michael J. Lynch
--------------------------
Michael J. Lynch
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933, this
Post- Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
ALFRED FEINMAN* General Partner )
) July 28, 2000
JAMES M. GLICKENHAUS* General Partner )
)
SETH M. GLICKENHAUS* General Partner )
Chief Investment Officer )
)
) By:/s/ Michael J. Lynch
) --------------------
) Michael J. Lynch
) Attorney-in-Fact*
</TABLE>
---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Registration Statement No. 333-89553 on December 9, 1999.
II-2
NYC55/9344.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 127 and
Guaranteed Series 128 certify that they have met all of the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933. The registrants have
duly caused this Post-Effective Amendment to the Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 28th day of July, 2000.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 127
AND GUARANTEED SERIES 128
(Registrants)
LEBENTHAL & CO., INC.
(Depositor)
By: /s/ D. WARREN KAUFMAN
---------------------
D. Warren Kaufman
(Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Post- Effective Amendment to the Registration Statement has been signed below by
the following persons, in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
H. GERARD BISSINGER, II* Director )
) July 28, 2000
JEFFREY M. JAMES* Director )
)
/s/ D. WARREN KAUFMAN Director )
--------------------- )
D. Warren Kaufman )
)
ALEXANDRA LEBENTHAL* Director, President ) By:/s/ D. WARREN KAUFMAN
) ---------------------
) D. Warren Kaufman
) Attorney-in-Fact*
JAMES A. LEBENTHAL* Director, Chief )
Executive Officer )
JAMES E. McGRATH** Director )
)
DUNCAN K. SMITH* Director )
---------------
</TABLE>
* Executed copies of Powers of Attorney were filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2,
1994.
** An Executed copy of Power of Attorney was filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 333-42455 on May 18, 1998.
II-3
NYC55/9344.1
<PAGE>
CONSENT OF COUNSEL
We hereby consent to our name under the heading "Legal Matters" in the
Prospectus included in the Registration Statement.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
New York, New York
July 28, 2000
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 127
AND GUARANTEED SERIES 128
We hereby consent to the use in Post-Effective Amendment No. 4 to
Registration Statement No. 333-01811 of our opinion dated April 28, 2000
relating to the financial statements of Empire State Municipal Exempt Trust,
Guaranteed Series 127 and Guaranteed Series 128 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
July 28, 2000
II-4
NYC55/9344.1
