Rule 497(b)
Registration No. 333-10371
5,000 Units
Dated: October 28, 1996
DUKE & COMPANY TAX FREE PORTFOLIOS - NATIONAL INSURED TRUST
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No person is authorized to give any information or Parts A and B of this Prospectus do not contain all of the
to make any representations not contained in Parts information set forth in the registration statement and
A and B of this Prospectus; and any information exhibits relating thereto, filed with the Securities and
not contained herein must not be relied upon as Exchange Commission, Washington, D.C. under the
the Evaluator or the Sponsor. The Trust is Securities Act of 1933, and the Investment Company Act of
registered as a unit investment trust under the 1940, and to which reference is made.
Investment Company Act of 1940. Such
registration does not imply that the Trust or any of This Prospectus does not constitute an offer to sell, or a
its Units have been guaranteed, sponsored, solicitation of an offer to buy, securities in any state to any
recommended or approved by the United States or person to whom it is not lawful to make such an offer in
any state or any agency or officer thereof. such state.
Table of Contents PROSPECTUS PART A.
Part A This Prospectus consists of two parts. This Part A may not be
Summary of Essential Financial Information A-2 distributed unless accompanied by Part B. Please read and
Independent Auditors' Report A-10 retain each of the parts of this Prospectus for future reference.
Statement of Condition A-11
Portfolio A-12 The Glickenhaus Special Situations Trust, Series 1 consisting
of the underlying unit investment trust designated Duke &
Part B Company Tax Free Portfolios - National Insured Trust, was
The Trust B-1 formed for the purpose of obtaining tax-exempt interest income
Public Offering B-9 through investment in a fixed insured portfolio of long-term
Estimated Current Return and bonds, including contracts and funds for-the purchase thereof,
Estimated Long-Term Return issued by or on behalf of states, municipalities, authorities or
to Unit Holders B-12 political subdivisions thereof or issued by certain United States
Insurance on the Bonds B-13 territories or possessions, including Puerto Rico, and their
Tax Status B-17 public authorities (the "Bonds" or the "Securities"). The
Rights of Unit Holders B-21 Sponsor of the Trust is Glickenhaus & Co. On the Date of
Automatic Accumulation Account B-27 Deposit, all of the Bonds in the Trust were irrevocably insured
and therefore are rated in the category "AAA" by Standard &
Rollover and Exchange Option B-28 Poor's Corporation, "Aaa" by Moody's Investors Service, Inc.
Sponsor B-28 or "AAA" by Fitch Investors Service, Inc. The value of the
Trustee B-30 Units of the Trust will fluctuate with the value of the
Evaluator B-31 underlying Bonds. Minimum purchase: 1 Unit.
Amendment and Termination of
the Trust Agreement B-31 In the opinion of counsel, under existing law, interest income
Legal Opinions B-32 to the Trust, and, with certain exceptions, to Unit Holders is
Auditors B-32 exempt from all regular Federal income taxes and alternative
Description of Bond Ratings B-32 minimum tax for individuals, but may be subject to state and
local taxes. Capital gains, if any, are subject to tax. See "Tax
Status" in Part B of this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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DUKE & COMPANY TAX FREE PORTFOLIOS -
NATIONAL INSURED TRUST
Glickenhaus Special Situations Trust, Series 1
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 25, 1996 (1):
SPONSOR: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
DATE OF DEPOSIT: October 28, 1996
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Aggregate Principal Amount of Bonds in Trust: $5,000,000(2)
Number of Units: 5,000
Fractional Undivided Interest in Trust Per Unit: 1/5,000
Total Value of Securities in Portfolio (Based on Offering Side Valuations of Securities): $4,706,827.50
=============
Sponsors' Initial Repurchase Price Per Unit (Total Value of Securities divided by 5,000 Units): $ 941.37(3)
Plus Sales Charge of 4.95% (on sales of fewer than 250 Units) of Public Offering Price (4): 49.02
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Public Offering Price Per Unit: $ 990.39(5)
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Redemption Price Per Unit: $ 936.92(6)
Excess of Public Offering Price Over Redemption Price Per Unit: $ 53.47
Excess of Public Offering Price Over Sponsors' Initial Repurchase Price Per Unit: $ 49.02
Weighted Average Maturity of Bonds in the Trust: 28.89 years
Evaluation Time: 12:00 P.M. New York Time on the initial Date of Deposit and 2:00 P.M. New York
Time thereafter.
Evaluator's Fee: $.55 per Bond for each valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.41 under the monthly
and $1.01 under the semi-annual distribution plan.
Sponsors' Annual Fee: Maximum of $0.25 per $1,000 principal amount of underlying Securities. See "The
Trust--Expenses and Charges."
Sponsors' Profit (Loss) on Deposit: $34,307.00
Mandatory Termination Date: December 31, 2045
First Settlement Date: October 31, 1996
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which Trust
Agreement May be Terminated: $1,000,000 or 20% of the principal amount of the Bonds
deposited in Trust, whichever is lower.
Monthly Semi-Annual
Estimated Annual Interest Income (includes cash income accrued only): $54.57 $54.57
P Less Organizational Expenses (7): .90 .90
E Less Estimated Annual Expenses: 2.59 2.09
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R Estimated Net Annual Interest Income: $51.08 $51.58
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Estimated Interest Distribution (8): $ 4.26 $25.79
U Estimated Current Return Based on Public Offering Price (includes cash
N income accrual only) (9): 5.16% 5.21%
I Estimated Long-Term Return (10): 5.19% 5.24%
T Estimated Daily Rate of Net Interest Accrual: $.141909 $.143297
Record Dates: 15th Day of Month 15th Day of
May and November
Payment Dates: 1st Day of Month 1st Day of
June and December
(continued on following page)
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NOTES TO SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
(1) The business day prior to the date of this prospectus. The date of
this prospectus is the date on which the trust agreement was signed and the
deposit with the trustee was made.
(2) If a replacement bond is not acquired when a contract for the
purchase of bonds fails, the aggregate principal amount of the bonds may be
reduced. See "the trust--portfolio--general considerations" in part b.
(3) Based, during the initial offering period, solely upon the
offering prices of the securities and thereafter on the bid prices of such
securities. See "the trust--market for units" in this part a.
(4) After the initial offering period, units may be available for
purchase from the sponsor at a price based upon the aggregate bid price of the
bonds in the trust (as determined by the evaluator) plus a sales charge
determined in accordance with the schedule set forth in "public
offering--offering price" in part b of this prospectus, which is based upon the
maturities of each bond in the trust.
(5) No accrued interest will be added to the public offering price in
connection with purchases of units contracted for on October 28, 1996. With
respect to purchases contracted for after such date, accrued interest from
October 28, 1996 to, but not including, the date of settlement (normally three
business days after order) will be added to the public offering price.
(6) Based solely upon the bid prices of the securities. Upon tender
for redemption, the price to be paid will include accrued interest as described
in "rights of unit holders--redemption--computation of redemption price per
unit" in part B.
(7) Although historically the sponsors of unit investment trusts
("UITS") have paid all the costs of establishing such UITS, this trust (and
therefore the unit holders) will bear all or a portion of its organizational
costs. Such organizational costs include: the cost of preparing and printing
the registration statement, the trust indenture and other closing documents;
and the initial audit of the trust. Total organizational expenses will be
amortized over a five year period. See "rights of unit holders--expenses and
charges--initial expenses" in part B.
(notes continued on next page)
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(notes continued from preceding pages)
(8) The first monthly interest distribution of $2.13 per Unit will be
made on December 1, 1996 (the "First Distribution Date") to all monthly
certificateholders of record on November 15, 1996 (the "First Record Date").
The regular monthly payment will be $4.26 on January 1, 1997 and thereafter.
The first semi-annual interest distribution of $2.15 per Unit will be made on
December 1, 1996 to all semi-annual certificateholders of record on November
15, 1996. The regular semi-annual payment will be $25.79 on June 1, 1997 and
thereafter. In order to reduce the amount of accrued interest investors have to
pay in addition to the Public Offering Price, the Trustee has agreed to advance
to the Trust the amount of accrued interest due on Securities through and
including October 31, 1996. This accrued interest will be paid to the Sponsor
as the holder of record of all Units on such date. Consequently, when the
Sponsor sells Units, the amount of accrued interest to be added to the Public
Offering Price of the Units purchased by an investor will include only accrued
interest from October 31, 1996 to but not including the date of settlement of
the investor's purchase (normally three business days after the purchase
contract), less any distributions from the Interest Account. Since a person who
contracts to purchase Units on October 28, 1996 will settle his purchase on
October 31, 1996, no accrued interest will be added to the Public Offering
Price of Units settled on that date. The Trustee will recover its advancements
(without interest or other cost to the Trust) from interest received on the
Securities deposited in the Trust. See "Rights of Unit
Holders--Redemption--Computation at Redemption Price per Unit in Part B."
(9) Estimated Current Return is calculated by dividing the estimated
net annual interest income received in cash per Unit by the Public Offering
Price. Interest income per Unit will vary with changes in fees and expenses of
the Trust and the Evaluator, and with the redemption, maturity, exchange or
sale of Securities. This calculation, which includes cash income accrual only,
does not include discount accretion on original issue discount bonds or on zero
coupon bonds or premium amortization on bonds purchased at a premium. See "The
Trust--Tax Status" in Part B of this Prospectus and "The Trust--Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in this Part A.
(10) Estimated Long-Term Return is calculated by using a formula that
takes into account the yields (including accretion of discounts and
amortization of premiums) of the individual Bonds in the Trust's portfolio,
weighted to reflect the market value and time to maturity (or, in certain
cases, to earlier call date) of such Bonds, adjusted to reflect the Public
Offering Price (including sales charge and expenses) per Unit. This calculation
does not take into account delays in payment to Unit holders for the first few
months of the Trust's operations, which reduces the Long-Term Return number.
See "The Trust--Estimated Current Return and Estimated Long-Term Return to Unit
Holders" in this Part A.
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The Trust
Glickenhaus Special Situations Trust (the "Fund"), Series 1 consists
of the underlying unit investment trust designated Duke & Company Tax Free
Portfolios, National Insured Trust (the "Trust), which is created under the
laws of the State of New York by a Trust Indenture and Agreement* (the "Trust
Agreement"), dated the Date of Deposit, among Glickenhaus & Co., as sponsor
(the "Sponsor"), The Bank of New York, as trustee (the "Trustee"), and Muller
Data Corporation, as evaluator (the "Evaluator"). The objective of the Trust is
to obtain tax-exempt interest income through an investment in a fixed insured
portfolio consisting primarily of various long-term municipal bonds. No
assurance can be given that the Trust's objectives will be achieved as these
objectives are subject to the continuing ability of the respective issuers of
the bonds to meet their obligations. In addition, an investment in such
portfolio can be affected by fluctuations in interest rates. On the Date of
Deposit, all of the Bonds in the Trust were rated "AAA" by Standard & Poor's
Corporation ("Standard & Poor's"), "Aaa" by Moody's Investors Service, Inc.
("Moody's") or "AAA" by Fitch Investors Service, Inc. ("Fitch") (see "The
Portfolio"). These ratings result from insurance relating only to the Bonds and
not to Units in the Trust. The Units of the Trust are not insured. The
insurance does not therefore remove market risk, as it does not guarantee the
market value of the Units.
Certain of the Bonds in the Trust may be purchased at prices which
result in the portfolio as a whole being purchased at a discount due to
original issue discount, market discount or the inclusion of zero coupon bonds.
Bonds selling at market discount tend to increase in market value as they
approach maturity when the principal amount is payable, thus increasing the
potential for gain (all or a portion of which may be taxable as ordinary
income). Any income other than any earned original issue discount will be
taxable and will not be realized until maturity, redemption or sale of the
underlying Bonds or Units of the Trust. In the case of Bonds acquired at a
market discount, gain will be treated as ordinary income to the extent of
accrued market discount. At the time of the original issuance of the Bonds held
by the Trust, opinions relating to the validity of the Bonds and the exemption
of interest thereon from Federal income tax were (or with respect to
"when-issued" Bonds will be) rendered by bond counsel to the issuing
governmental authority. The continued tax-exempt status will depend upon the
issuer's ability to comply with the provisions of the Internal Revenue Code of
1986, as amended. See "Tax Status" in Part B of this Prospectus. On the Date of
Deposit, the Sponsor deposited with the Trustee delivery statements relating to
contracts for the purchase of $5,000,000 aggregate principal amount for the
interest-bearing obligations, including funds (represented by cash, cash
equivalents and/or an irrevocable letter of credit issued by a major financial
institution) for the purchase of certain such obligations (the "Bonds" or the
"Securities"). The Trustee thereafter delivered to the Sponsor a registered
certificate of 5,000 Units, representing the entire ownership of the Trust,
which Units are being offered hereby.
In view of the Fund's objectives, the following factors, among others,
were considered in selecting the Bonds: (1) all the Bonds are obligations of
states 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 income tax under existing law; (2) the Bonds
are varied as to purpose of issue; (3) in the opinion of the Sponsor, the Bonds
are fairly valued relative to other
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* References in this Prospectus to the Trust Agreement are qualified in
their entirety by the Trust Agreement which is incorporated herein by
reference.
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bonds of comparable quality and maturity; (4) whether such Bonds are rated AAA
by a major bond rating agency; and (5) the quality of the Bonds and whether
such Bonds are insured (see "Insurance"). Subsequent to the Date of Deposit, a
Bond may cease to be rated or its rating may be reduced. In the event a Bond's
rating is downgraded to below investment grade (i.e., "high yield" or "junk
bond" status), such a Bond, as compared to an investment grade bond, is subject
to greater risk of downward price volatility in periods of economic
uncertainty. If a Bond in the Trust is downgraded to high yield bond status, a
decrease in the net asset value of the Trust will likely result. If such a
decrease in net asset value occurs and Units of the Trust are tendered for
redemption, the Trust may be forced to liquidate some of the Bonds at a loss.
If such redemptions are substantial enough, this could trigger a complete and
unexpected liquidation of the Trust before maturity, resulting in unanticipated
losses for investors. Notwithstanding such risk, neither the downgrading of a
Bond to below investment grade nor a Bond's ceasing to be rated, requires an
elimination of such Bond from the portfolio of the Trust, but such an event may
be considered in the Sponsor's determination to direct the Trustee to dispose
of the Bonds. See "Sponsor--Responsibility" in Part B.
Public Offering Price
The Public Offering Price of the Units of the Trust during the
initial offering period is equal to the aggregate offering price of the
Securities in the respective Trust's portfolio divided by the number of Units
outstanding, plus a sales charge equal to 4.95% of the Public Offering Price of
the Trust on sales of fewer than 250 Units. In addition, for Units ordered
after the date hereof, accrued interest will be payable from the First
Settlement Date for Units of the Trust (three business days from the date
hereof) to the expected date of settlement (three business days after order).
For additional information regarding the Public Offering Price, the
descriptions of interest and principal distributions, repurchase and redemption
of Units and other essential information regarding the Trust, see the "Summary
of Essential Information" in this Part A. During the initial public offering
period, sales of at least 250 Units will be entitled to a volume discount from
the Public Offering Price. See "Public Offering--Offering Price" in Part B. If
the Units of the Trust had been available for sale on October 25, 1996, the
Public Offering Price per Unit would have been $990.39.
Estimated Current Return and Estimated Long-Term Return
Units of the Trust are offered to investors on a "dollar price" basis
(using the computation method previously described under "Public Offering
Price") as distinguished from a "yield price" basis often used in offerings of
tax exempt bonds (involving the lesser of the yield as computed to maturity of
bonds or to an earlier redemption date). Since they are offered on a dollar
price basis, the rate of return on an investment in Units of the Trust is
measured in terms of "Estimated Current Return" and "Estimated Long Term
Return."
Estimated Long Term Return is calculated by: (1) computing the yield
to maturity or to an earlier call date (whichever results in a lower yield) for
each Bond in the Trust portfolio in accordance with accepted practices, which
practices take into account not only the interest payable on the Bonds but also
the amortization of premiums or accretion of discounts, if any; (2) calculating
the average of the yields for the Bonds in the Trust portfolio by weighing each
Bond's yield by the market value of the Bond and by the amount of time
remaining to the date to which the Bond is priced (thus creating an average
yield for the portfolio of the Trust); and (3) reducing the average yield for
the portfolio of the Trust in order to reflect estimated fees and expenses of
the Trust and the maximum sales charge paid by Unit holders. The resulting
Estimated Long Term Return represents a measure of the return
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to Unit holders earned over the estimated life of the Trust. The Estimated Long
Term Return as of the day prior to the Date of Deposit is stated for the Trust
under "Summary of Essential Information" in Part A.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price per Unit. In
contrast to the Estimated Long Term Return, the Estimated Current Return does
not take into account the amortization of premium or accretion of discount, if
any, on the Bonds in the portfolio of the Trust. Moreover, because interest
rates on Bonds purchased at a premium are generally higher than current
interest rates on newly issued bonds of a similar type with comparable rating,
the Estimated Current Return per Unit may be affected adversely if such
Securities are redeemed prior to their maturity. On the day prior to the Date
of Deposit, the Estimated Net Annual Interest Income per Unit divided by the
Public Offering Price resulted in the Estimated Current Return stated for the
Trust under "Summary of Essential Information" in Part A.
The Estimated Net Annual Interest Income per Unit of the Trust will
vary with changes in the fees and expenses of the Trustee and the Evaluator
applicable to the Trust and with the redemption, maturity, sale or other
disposition of the Bonds in the Trust. The Public Offering Price will vary with
changes in the offering prices (bid prices in the case of the secondary market)
of the Bonds. Therefore, there is no assurance that the present Estimated
Current Return or Estimated Long Term Return will be realized in the future. A
schedule of cash flow projections is available from the Sponsor upon request.
Distributions
Distributions of interest received by the Trust, pro rated on an
annual basis, will be made semi-annually unless the Unit holder elects to
receive them monthly. The first monthly distribution will be $2.13 for Units of
the Trust and will be made on December 1, 1996, to monthly Unit holders of
record on November 15, 1996, and $4.26 thereafter. The first semi-annual
distribution will be $2.15 for Units of the Trust and will be made on December
1, 1996, to semi-annual Unit holders of record on November 15, 1996, and $25.79
thereafter. See "Rights of Unit Holders--Distribution of Interest and
Principal" in Part B of this Prospectus.
Each Unit of the Trust at the Date of Deposit represents 1/5,000
fractional undivided interest in the $5,000,000 face amount of underlying Bonds
and net income of the Trust in the ratio of 1 Unit for each $1,000 principal
amount of underlying Bonds (including contracts and funds for the purchase
thereof) in the Trust.
Automatic Accumulation Account
Distributions from the Trust are made semi-annually unless the Unit
holder elects to receive them monthly. Unit holders of the Trust have the
option, however, of either receiving their interest check, together with any
principal payments, from the Trustee or participating in the Automatic
Accumulation Account reinvestment program offered by the Sponsor (the "Plan").
Under the Plan, a Unit holder may elect to have distributions from Units in the
Trust automatically reinvested in shares of an open-end mutual fund.
Participation in the Plan is conditioned on the participating fund's lawful
qualification for sale in the state in which the Unit holder is a resident. The
Plan is not designed to be a complete investment program. See "Automatic
Accumulation Account" in Part B for details on how to enroll in the Plan and
how to obtain a prospectus.
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Insurance
Each of the Bonds in the Trust is insured by a municipal bond
guaranty insurance policy obtained by the issuers of the Bonds ("Pre-Insured
Bonds") and issued by one of the insurance companies (the "Insurance
Companies"), described under "Insurance on the Bonds" in Part B of this
Prospectus, covering scheduled payment of principal thereof and interest
thereon when such amounts shall become due for payment but shall not have been
paid by the issuer or any other insurer thereof. The insurance will also cover
any accelerated payments of principal and the increase in interest payments or
premiums, if any, payable upon mandatory redemption of the Bonds if interest on
any Bonds is ultimately deemed to be subject to regular federal income tax.
None of the insurance will cover accelerated payments of principal or penalty
interest or premiums unrelated to taxability of interest on the Bonds (although
the insurance does guarantee payment of principal and interest in such amounts
and at such times as such amounts would have been due absent such
acceleration). The insurance relates only to the prompt payment of principal of
and interest on the securities in the portfolio, and does not remove market
risks or guarantee the market value of the Units in the Trust. The terms of the
insurance are more fully described under "Insurance on the Bonds" in Part B of
this Prospectus. For a discussion of the effect of an occurrence of nonpayment
of principal or interest on any Bonds in the Trust, see "Portfolio Supervision"
in Part B of this Prospectus. No representation is made herein as to any Bond
insurer's ability to meet its obligations under a policy of insurance relating
to any of the Bonds. In addition, investors should be aware that, subsequent to
the Date of Deposit, the rating of the claims paying ability of the insurer of
an underlying Bond may be downgraded, which may result in a downgrading of the
rating of the Units in the Trust. The approximate percentage of the aggregate
principal amount of the portfolio that is insured by each insurance company is
as follows: AMBAC Indemnity Corp. ("AMBAC"), 10.00%; Connie Lee Insurance
Company ("Connie Lee"), 10.00%; Financial Guaranty Insurance Company
("Financial Guaranty"), 14.00%; Financial Security Assurance, Inc. ("Financial
Security"), 10.00%; and Municipal Bond Insurance Association ("MBIA"), 56.00%.
The Portfolio
The portfolio of the Trust contains contracts to purchase 12 issues
of Bonds issued by entities located in 8 states. All such contracts are
expected to be settled by October 31, 1996. The following information is being
supplied to inform Unit holders of circumstances affecting the Trust. 14.00% of
the aggregate principal amount of the Bonds in the portfolio are general
obligations of the governmental entity issuing them which are backed by the
taxing power thereof. None of the aggregate principal amount of the Bonds in
the portfolio are payable from appropriations. 86.00% of the aggregate
principal amount of the Bonds in the portfolio are payable from the income of
specific projects or authorities and are not supported by the issuers' power to
levy taxes. Although income to pay such Bonds may be derived from more than one
source, the primary sources of such income, the number of issues (and the
related dollar weighted percentage of such issues) deriving income from such
sources and purpose of issue are as follows: General Obligation, 2 (14.00%);
Health Care, 3 (30.00%); Higher Education, 1 (10.00%); Public Power, 3
(20.00%); Special Tax, 2 (16.00%); and Water & Sewer, 1 (10.00%). The Trust is
deemed to be concentrated in the Health Care category.* Prior to their deposit
in the Trust, all of the issues (100%) were
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* A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25%
or more of the aggregate face amount of the portfolio. See "The
Trust--General Considerations" in Part B of this Prospectus.
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rated AAA by Standard and Poor's Corporation.* See "Description of Bond
Ratings" in Part B of this Prospectus. For a more detailed discussion, it is
recommended that Unit holders consult the official statements for each security
in the portfolio of the Trust.
None of the Bonds initially deposited in the Trust have been
purchased on a "when issued" basis and none of the Bonds initially deposited in
the Trust has been purchased on a delayed settlement basis. Normally, delivery
of "when issued" Bonds and delayed settlement Bonds is expected to take place
within 30 days after the First Settlement Date. Accordingly, delivery may be
delayed or may not occur. Interest on such Bonds begins accruing to the benefit
of Unit holders on the date of delivery. Holders of Units will be "at risk"
with respect to such Bonds (i.e., may derive either gain or loss from
fluctuations in the offering side valuation of such Bonds) from the date they
commit for Units. See "The Trust--Portfolio--General Considerations" in Part B.
90.00% of the aggregate principal amount of the Bonds in the Trust
are original issue discount bonds that have mandatory sinking fund installment
provisions at redemption prices equal to the compound accreted value on the
date of redemption. Of these original issue discount bonds, 6.50% are zero
coupon bonds. 6.50% of the aggregate principal amount of the Bonds in the Trust
are zero coupon bonds that do not have mandatory sinking fund installment
provisions. Zero coupon bonds do not provide for the payment of any current
interest and provide for payment at maturity at par value unless sooner sold or
redeemed. The market for zero coupon bonds is subject to greater fluctuations
than coupon bonds in response to changes in interest rates. (See "Original
Issue Discount and Zero Coupon Bonds" in Part B of this Prospectus). On the
Date of Deposit, 20.00% of the Bonds (portfolio numbers 1 and 2) in the Trust
were purchased at a premium and are subject to retirement or refunding within
ten years of the Date of Deposit. On the Date of Deposit, based on the offering
side valuation, none of the aggregate principal amount of the Bonds were at
par, 56.00% of the aggregate principal amount of the Bonds were at a discount
from par and 44.00% of the aggregate principal amount of the Bonds were at a
premium.
An investment in Units of the Trust should be made with an
understanding of the risks entailed in investments in fixed-rate bonds,
including the risk that the value of such bonds (and, therefore, of the Units)
will decline with increases in interest rates or a decrease in the federal
income tax rate. Inflation and recession, as well as measures implemented to
address these and other economic problems, contribute to fluctuations in
interest rates and the values of fixed-rate bonds generally. Additionally,
changes in the tax treatment of bonds may have an adverse impact on the value
of the Units. The Sponsor cannot predict future economic policies or their
consequences, nor can it predict the course or extent of such fluctuations in
the future.
Underwriting
Duke & Company Inc., 909 Third Avenue, New York, New York 10022, will
act as sole underwriter (the "Underwriter") for all of the Units of the Duke &
Company Tax Free Portfolios - National Insured Trust comprising Glickenhaus
Special Situations Trust, Series 1. See "Public Offering - Distribution of
Units" in Part B.
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* For the meanings of ratings, including the symbols "p" and "Con. (. .
.)," see "Description of Bond Ratings" in Part B of this Prospectus.
Security letter ratings may be modified by the addition of a plus or
minus sign, when appropriate, to show relative standing within the
major rating categories. There can be no assurance that the economic
and political conditions on which the ratings of the Bonds in any Trust
are based will continue or that particular Bond issues may not be
adversely affected by changes in economic, political or other
conditions that do not affect the above ratings. See "The
Trust--General Considerations" in Part B of this Prospectus.
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INDEPENDENT AUDITORS' REPORT
The Sponsor, Trustee, and Unit Holders of Glickenhaus Special Situations Trust,
Series 1, Duke & Company Tax Free Portfolios - National Insured Trust
We have audited the Statement of Condition of the Glickenhaus Special
Situations Trust, Series 1, Duke & Company Tax Free Portfolios - National
Insured Trust, including the Portfolio as of October 28, 1996. This financial
statement is the responsibility of the Sponsor. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsor, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion. An
irrevocable letter of credit deposited on October 28, 1996 in the amount
required to purchase securities, as described in the Statement of Condition,
was confirmed to us by The Bank of New York, the Trustee.
In our opinion, the Statement of Condition and Portfolio referred to
above present fairly, in all material respects, the financial position of the
Glickenhaus Special Situations Trust, Series 1, Duke & Company Tax Free
Portfolios - National Insured Trust, as of October 28, 1996 in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
October 28, 1996
A-10
C/M: 10726.0002 388575.4
<PAGE>
DUKE & COMPANY TAX FREE PORTFOLIOS - NATIONAL INSURED TRUST
Glickenhaus Special Situations Trust, Series 1
STATEMENT OF CONDITION AS OF DATE OF DEPOSIT
October 28, 1996
TRUST PROPERTY
Investment in Securities:
Contracts to purchase underlying Securities (1)(2).... $4,706,827.50
Accrued interest receivable (2)................................ 67,689.51
Organizational costs (3)....................................... 22,500.00
-------------
Total.................................. $4,797,017.01
=============
LIABILITIES AND INTEREST OF UNIT HOLDERS
Liabilities:
Accrued interest receivable (2)................................ $ 67,689.51
Accrued liability (3).......................................... 22,500.00
---------
90,189.50
Interest of Unit holders:
Units of fractional undivided interest outstanding (5,000):
Cost to investors (4)................................. 4,951,950.00
Less--gross underwriting commission (5)............... 245,122.50
-------------
Net interest of Unit holders................................... 4,706,827.50
-------------
Total.......................................... $4,797,017.01
=============
- -----------------
(1) Aggregate cost to the Trust of the Securities listed under
"Portfolio" is based on offering side valuation determined by the Evaluator on
the basis set forth under "Public Offering--Offering Price" in Part B. The
aggregate bid side evaluation of the Securities in the portfolio, as determined
by the Evaluator, as of the Date of Deposit was $4,684,597.50. An irrevocable
letter of credit issued by Bankers Trust, in an aggregate amount equal to or in
excess of $4,774,750.95, has been deposited with the Trustee. The amount of
such letter of credit includes: $4,706,827.50, the amount required to purchase
the tax-exempt securities listed in the related portfolio, plus $67,923.45
covering accrued interest through expected dates of delivery.
(2) On the basis set forth under "Rights of Unit
Holders--Distribution of Interest and Principal" in Part B the Trustee will
advance an amount equal to the accrued interest on the Securities as of October
31, 1996 (the "First Settlement Date") plus any cash received by the Trustee
with respect to interest on the Securities prior to such date, and the same
will be distributed to the Sponsors on the First Settlement Date. Consequently,
the amount of interest accrued on a Unit to be added to the public offering
price thereof will include only such accrued interest from the First Settlement
Date to the date of settlement, less all withdrawals and deductions from the
Interest Account subsequent to the First Settlement Date made with respect to
the Unit.
(3) Organizational costs incurred by the Trust have been deferred and
will be amortized over a five year period. The Trust will reimburse the
Sponsors for actual organizational costs incurred. (4) Aggregate public
offering price (exclusive of interest) is computed on 5,000 Units on the basis
set forth above under "Public Offering-- Offering Price" in Part B. (5) A sales
charge of 4.95% computed on 5,000 Units. See "Public Offering--Offering Price"
in Part B for volume discounts on sales of 250 Units or more.
A-11
C/M: 10726.0002 388575.4
<PAGE>
DUKE & COMPANY TAX FREE PORTFOLIOS - NATIONAL INSURED TRUST
Glickenhaus Special Situations Trust, Series 1
Portfolio as of Date of Deposit, October 28, 1996
<TABLE>
<CAPTION>
Redemption Features
Port- Coupon Ant.--Anticipated
folio Rating Principal Represented by Contracts to Rate and S.F.--Sinking Fund
No. (1) Amount (2) Purchase Securities (3) Maturity Opt.--Optional (4)
- ------------------------------------------- ------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $500,000 Illinois Educational Facilities 6.250% 05/15/17 @ 100 S.F.
Authority Revenue Bonds, 05/15/26 05/15/06 @ 102 Opt.
Midwestern University, Series B
(Connie Lee Insured)
2 AAA 500,000 Clark County Nevada, General 6.000 07/01/22 @ 100 S.F.
Obligation (Limited Tax) Las Vegas 07/01/26 07/01/06 @ 101 Opt.
Convention and Visitors Authority
Bonds (Additionally Secured with
Pledged Revenues) Series
September 1, 1996 (FSA Insured)
3 AAA 500,000 The Special Care Facilities 5.875 11/15/20 @ 100 S.F.
Financing Authority of the City of 11/15/26 11/15/06 @ 102 Opt.
Birmingham Baptist Medical Centers
Revenue Bonds, Series 1996-A
(Baptist Health System, Inc.),
(MBIA Insured)
4 AAA 200,000 The County of Cook, Illinois, 5.875 11/15/17 @ 100 S.F.
General Obligation Capital 11/15/22 11/15/06 @ 101 Opt.
Improvement Bonds, Series 1996
(FGIC Insured)
5 AAA 500,000 New Hampshire Higher Educational 5.875 01/01/14 @ 100 S.F.
and Health Facilities Authority 01/01/20 01/01/07 @ 102 Opt.
Revenue Bonds, Crotched Mountain
Rehabilitation Center Issue, Series
1996 (MBIA Insured)
6 AAA 500,000 New York State Medical Care 5.750 02/15/15 @ 100 Ant.
Facilities Finance Agency, 02/15/25 02/15/05 @ 102 Opt.
Montefiore Medical Center FHA-
Insured Mortgage Revenue Bonds,
1995 Series A (AMBAC Insured
Series)
7 AAA 500,000 City of Peru, Illinois Electric System 5.750 05/01/14 @ 100 S.F.
Revenue Bonds, Series 1993 (FGIC 05/01/25 05/01/03 @ 101 Opt.
Insured)
8 AAA 500,000 New York City Municipal Water 5.750 06/15/21 @ 100 S.F.
Finance Authority Water and Sewer 06/15/26 06/15/06 @ 101 Opt.
System Revenue Bonds, Fiscal 1996
Series B (MBIA Insured)
</TABLE>
Port- Yield Cost of
folio to Securities
No. Maturity to Trust(5)(6)
- -----------------------------------------------
1 5.801% $518,695.00
2 5.800 507,825.00
3 5.845 501,250.00
4 5.845 200,500.00
5 5.845 501,250.00
6 5.840 493,750.00
7 5.900 489,700.00
8 5.835 494,000.00
A-12
C/M: 10726.0002 388575.4
<PAGE>
DUKE & COMPANY TAX FREE PORTFOLIOS - NATIONAL INSURED TRUST
Glickenhaus Special Situations Trust, Series 1
Portfolio as of Date of Deposit, October 28, 1996
<TABLE>
<CAPTION>
Redemption Features
Port- Coupon Ant.--Anticipated
folio Rating Principal Represented by Contracts to Rate and S.F.--Sinking Fund
No. (1) Amount (2) Purchase Securities (3) Maturity Opt.--Optional (4)
- ------------------------------------------- ------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9 AAA $200,000 Public Utility District No. 2 of 5.625% 01/01/27 @ 100 S.F.
Grant County, Washington, Priest 01/01/31 01/01/06 @ 102 Opt.
Rapids Hydroelectric Development
Second Series Revenue Bonds, 1996
A (MBIA Insured)
10 AAA 300,000 Public Utility District No. 2 of 5.625 01/01/27 @ 100 S.F.
Grant County, Washington, 01/01/31 01/01/06 @ 102 Opt.
Wanapum Hydroelectric evelop-
ment Second Series Revenue Bonds,
1996 A (MBIA Insured)
11 AAA 475,000 Pennsylvania Intergovernmental 5.625 06/15/16 @ 100 S.F.
Cooperative Authority Special Tax 06/15/23 06/15/03 @ 100 Opt.
Revenue Bonds (City of Philadelphia
Funding Program) Series of 1993
(MBIA Insured)
12 AAA 325,000 Wisconsin Center District Senior 0.000 No Sinking Fund
Dedicated Tax Revenue Bonds 12/15/27 No Optional Call
Series 1996 A (MBIA Insured)
$5,000,000
==========
</TABLE>
Port- Yield Cost of
folio to Securities
No. Maturity to Trust(5)(6)
- -------------------------------------------
9 5.855% $193,218.00
10 5.855 289,827.00
11 5.848 460,750.00
12 5.727 56,062.50
$4,706,827.50
=============
A-13
C/M: 10726.0002 388575.4
<PAGE>
FOOTNOTES TO PORTFOLIO
The symbol "NR" denotes a non-rated issue of Bonds.
(1) All ratings are by Standard & Poor's except those identified by
an asterisk (*) are by Moody's and those identified by a double asterisk (**)
are by Fitch. A brief description of the rating symbols and their meanings is
set forth under "Description of Bond Ratings" in Part B.
(2) All Bonds are represented by contracts to purchase.
(3) All contracts to purchase the Bonds were entered into from
October 18, 1996 to October 25, 1996. All contracts are expected to be settled
prior to or on the First Settlement Date of the Trust which is expected to be
October 31, 1996. These bonds are expected to be settled (and interest begins
accruing on these bonds to the benefit of Unit holders of the Trust) within 30
days after the First Settlement Date.
(4) Unless otherwise indicated, there is shown under this heading the
year in which each issue of bonds initially is redeemable and the redemption
price for that year. Each such issue continues to be redeemable at declining
prices thereafter, but not below par. "S.F." indicates a sinking fund has been
or will be established with respect to an issue of Bonds. In addition, certain
Bonds in the Trust may be redeemed in whole or in part other than by operation
of the stated optional call or sinking fund provisions under certain unusual or
extraordinary circumstances specified in the instruments setting forth the
terms and provisions of such Bonds. A sinking fund is a reserve fund
accumulated over a period of time for retirement of debt. "Ant." indicates the
existence of anticipated redemptions at a price of 100%. Under certain
circumstances, these anticipated redemptions can be altered. A callable bond is
one which is subject to redemption or refunding prior to maturity at the option
of the issuer. A refunding is a method by which a bond issue is redeemed before
maturity by the proceeds of a new bond issue.
Redemption pursuant to call provisions generally will, and redemption
pursuant to sinking fund provisions may, occur at times when the redeemed Bonds
have an offering side valuation which represents a premium over par. To the
extent that the Bonds were deposited in the Trust at a price higher than the
price at which they are redeemed, this will represent a loss of capital when
compared with the original Public Offering Price of the Units. Conversely, to
the extent that the Bonds were acquired at a price lower than the redemption
price, this will represent an increase in capital when compared with the
original Public Offering Price of the Units. Monthly and semi-annual
distributions will generally be reduced by the amount of the income which would
otherwise have been paid with respect to redeemed Bonds and there will be
distributed to Unit holders the principal amount and any premium received on
such redemption. The estimated current return in this event may be affected by
such redemptions. The Federal tax effect on Unit holders of such redemptions
and resultant distributions is described in the section entitled "The
Trust--Tax Status" in Part B.
(5) See Note (1) to "Statement of Condition as of Date of Deposit"
regarding cost of Bonds. The offering prices are greater than the current bid
prices of the Bonds which is the basis on which Redemption Price per Unit is
determined for purposes of redemption of Units (see the first paragraphs under
"Public Offering--Offering Price" and "Rights of Unit
Holders--Redemption--Computation of Redemption Price Per Unit" in Part B). On
the business day prior to the Date of Deposit the aggregate bid side valuation
of the Securities in the Trust was lower than the aggregate offering side
valuation by .472%. Yield of Bonds was computed on the basis of offering prices
on the Date of Deposit.
Bonds identified as escrowed to maturity under "Portfolio" for the
Trust in this Part A are priced to the maturity date not the call date.
(6) Annual interest income to the Trust is $272,843.75.
A-14
C/M: 10726.0002 388575.4
<PAGE>
TAX EQUIVALENT YIELDS
FEDERAL TAX FREE VS. TAXABLE INCOME
This table show the approximate yields which taxable securities must
earn in various income brackets to produce, after Federal income tax, returns
equivalent to specified tax-exempt bond yields. The table is computed on the
theory that the taxpayer's highest bracket tax rate is applicable to the entire
amount of any increase or decrease in his taxable income resulting from a
switch from taxable to tax-exempt securities or vice versa. The table reflects
projected Federal income tax rates and the tax brackets for the 1996 taxable
year. Because the Federal rate brackets are subject to adjustment based on
changes in the Consumer Price Index, the taxable equivalent yields for
subsequent years may vary somewhat from those indicated in the table. Use this
table to find your tax bracket. Read across to determine the approximate
taxable yield you would need to equal a return free of Federal income tax.
<TABLE>
1996 Tax Year
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Taxable Income Bracket Tax Exempt Yield
Federal
Joint Return Single Return Tax Rate 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
Taxable Equivalent Yield
- ---------------------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0-40,100 $ 0-24,000 15.00% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
$ 40,101-96,900 $ 24,001-58,150 28.00% 5.56 6.25 6.94 7.64 8.33 9.03
$ 96,901-117,950 $ 58,151-117,950 31.00% 5.80 6.52 7.25 7.97 8.70 9.42
$117,951-147,700 $117,951-121,300 31.93% 5.88 6.61 7.35 8.08 8.81 9.55
$147,701-263,750 $121,301-263,750 37.08% 6.36 7.15 7.95 8.74 9.54 10.33
Over $263,750 Over $263,750 40.79% 6.76 7.60 8.44 9.29 10.13 10.98
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: This table reflects the following:
1. Taxable income, as reflected in the above table, equals Federal
adjusted gross income (AGI), less personal exemptions and itemized
deductions. However, certain itemized deductions are reduced by the
lesser of (i) three percent of the amount of the taxpayer's AGI over
$117,950, or (ii) 80 percent of the amount of such itemized deductions
otherwise allowable. The effect of the three percent phase out on all
itemized deductions and not just those deductions subject to the phase
out is reflected above in the combined Federal and state tax rates
through the use of higher effective Federal tax rates. In addition,
the effect of the 80 percent cap on overall itemized deductions is not
reflected on this table. Federal income tax rules also provide that
personal exemptions are phased out at a rate of two percent for each
$2,550 (or fraction thereof) of AGI in excess of $176,950 for married
taxpayers filing a joint tax return and $117,950 for single taxpayers.
The effect of the phase out of personal exemptions is not reflected in
the above table.
2. The taxable equivalent yield table does not incorporate the effect of
graduated rate structures in determining yields. Instead, the tax
rates used are the highest marginal tax rates applicable to the income
levels indicated within each bracket.
3. Interest earned on all municipal obligations may cause certain
investors to be subject to tax on a portion of their Social Security
and/or railroad retirement benefits. The effect of this provision is
not included in the above table.
A-15
C/M: 10726.0002 388575.4
<PAGE>
DUKE & COMPANY TAX FREE PORTFOLIOS -
NATIONAL INSURED TRUST
Glickenhaus Special Situations Trust, Series 1
Prospectus Part B
Part B of this Prospectus may not be Distributed Unless Accompanied by Part A
THE TRUST
Organization
Glickenhaus Special Situations Trust (the "Fund"), Series 1 consisting
of the underlying unit investment trust designated Duke & Company Tax Free
Portfolios - National Insured Trust (the "Trust") was created under the laws of
the State of New York by a Trust Indenture and Agreement* (the "Trust
Agreement"), dated the Date of Deposit, among Glickenhaus & Co. as sponsor (the
"Sponsor"), The Bank of New York, as trustee (the "Trustee"), and Muller Data
Corporation, as evaluator (the "Evaluator").
On the date of this Prospectus each Unit represented the fractional
undivided interest in the Trust set forth under "Summary of Essential Financial
Information" in Part A. Thereafter, if any Units of the Trust are redeemed by
the Trustee, the fractional undivided interest in the Trust represented by each
unredeemed Unit will increase, although the actual interest in the Trust
represented by each such Unit will remain essentially the same. Units will
remain outstanding until redeemed upon tender to the Trustee by any Unit
holder, which may include the Sponsor, or until the termination of the Trust
Agreement for the related Trust. See "Rights of Unit Holders--Redemption" in
this Part B.
Objectives
The objective of the Fund is to obtain tax-exempt interest income
through an investment in a fixed portfolio consisting primarily of various
intermediate or long-term municipal bonds. No assurance can be given that the
Fund's objectives will be achieved as these objectives are subject to the
continuing ability of the respective issuers of the bonds to meet their
obligations. In addition, an investment in such portfolio can be affected by
fluctuations in interest rates and general market conditions.
- --------
* References in this Prospectus to the Trust Agreement are qualified in their
entirety by the Trust Agreement which is incorporated herein by reference.
388740.3
<PAGE>
Portfolio
The portfolio of the Trust consists of the Bonds described in "The
Portfolio" in Part A and are represented by the Sponsor's contracts to
purchase, which are expected to be settled by the date set forth in Part A. The
Trust may contain Bonds which have been purchased on a when, as, and if issued
basis. Accordingly, the delivery of such Bonds may be delayed or may not occur.
(See "The Portfolio" in Part A.) Interest on these Bonds begins accruing to the
benefit of Unit holders on their respective dates of delivery. Unit holders
will be "at risk" with respect to these Bonds (i.e., may derive either gain or
loss from fluctuations in the offering side evaluation of the Bonds) from the
date they commit for Units. (See "The Portfolio" in Part A.) For a discussion
of the Sponsor's obligations in the event of the failure of any contract for
the purchase of any of the Bonds and limited right to substitute other bonds to
replace any failed contract, see "Substitution of Bonds" in this Part B. On the
Date of Deposit, all of the Bonds in the Trust were rated "AAA" by Standard &
Poor's, "Aaa" by Moody's or "AAA" by Fitch because each Bond was insured by a
municipal bond guaranty insurance policy (see "Insurance On the Bonds" in this
Part B).
In view of the Fund's objectives, the following factors, among others,
were considered in selecting the Bonds: (1) All the Bonds are obligations of
states 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 income tax under existing law; (2) the Bonds
are varied as to purpose of issue; (3) in the opinion of the Sponsor, the Bonds
are fairly valued relative to other bonds of comparable quality and maturity;
(4) whether such Bonds are rated AAA by a major bond rating agency; and (5) the
quality of the Bonds and whether such Bonds are insured. 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 Sponsor's determination to direct the Trustee to
dispose of the Bonds. See "Sponsor--Responsibility" in Part B. See "The
Trust--Portfolio--General Considerations" in this Part B.
General Considerations
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with their terms
and the proceeds from such events will be distributed to Unit holders and will
not be reinvested, no assurance can be given that the Trust will retain for any
length of time its present size and composition. Except as described in
footnotes to "Summary of Essential Financial Information" for the Trust
interest accrues to the benefit of Unit holders commencing with the expected
date of settlement for purchase of the Units. If a Replacement Bond is not
acquired, accrued interest (at the coupon rate of the Failed Bonds or earned
original issue discount in the case of original issue discount and zero coupon
Bonds) will be paid to Unit holders (from the Deposit Date to the date the
Trustee is notified of the failure of the Sponsors to purchase a Replacement
Bond). All such interest paid to Unit holders which accrued after the date of
settlement for a purchase of Units will be paid by the Sponsor and accordingly
will not be treated as tax-exempt income. In the event a Replacement Bond is
not acquired by the Trust, the net annual interest income per Unit for the
Trust would be reduced and the estimated current return might be lowered.
Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any Security. In the event that any contract for
the purchase of Securities in the Trust fails and no Replacement Bond as
hereinafter defined is acquired, the Sponsor shall refund to all Unit holders
the sales charge attributable to such failed contract, and the principal and
accrued interest (at the coupon rate of the relevant Security or earned
original issue discount in the case of original issue discount and zero coupon
Bonds to the date the Sponsor is notified of the failure) which are
attributable to such failed contract, shall be distributed at the next Monthly
Payment Date which is more than
B-2
388740.3
<PAGE>
30 days after the failure to purchase Replacement Bonds. The portion of such
interest paid to a Unit holder which accrued after the expected date of
settlement for purchase of his Units will be paid by the Sponsor and
accordingly will not be treated as tax-exempt income.
The following paragraphs discuss the characteristics of the Bonds in
the Trust and of certain types of issuers of the Bonds in the Trust. These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payment of principal of
and interest on Bonds held in the portfolio of the Trust or which may adversely
affect the ratings of such Bonds. An investment in Units of the Trust should be
made with an understanding of the risks that such an investment may entail,
certain of which are described below. Unit holders may obtain additional
information concerning a particular Bond by requesting an official statement
from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest. The
taxing power of any governmental entity may be limited, however, by provisions
of state constitutions or laws, and an entity's credit will depend on many
factors, including potential erosion of the tax base due to population
declines, natural disasters, declines in the state's industrial base or
inability to attract new industries; economic limits on the ability to tax
without eroding the tax base; state legislative proposals or voter initiatives
to limit ad valorem real property taxes; and the extent to which the entity
relies on Federal or state aid, access to capital markets or other factors
beyond the state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease purchase
obligations as a means for financing the acquisition of capital projects (e.g.,
buildings or equipment, among other things). Such obligations are often made
subject to annual appropriations. Certain Bonds in the Trust may be Bonds that
are, in whole or in part, subject to and dependent upon (i) the governmental
entity making appropriations from time to time or (ii) the continued existence
of special temporary taxes which require legislative action for their
reimposition. The availability of any appropriation is subject to the
willingness of the governmental entity to continue to make such special
appropriations or to reimpose such special taxes. The obligation to make lease
payments exists only to the extent of the monies available to the governmental
entity therefor, and no liability is incurred by the governmental entity beyond
the monies so appropriated. Subject to the foregoing, once an annual
appropriation is made, the governmental entity's obligation to make lease
rental payments is absolute and unconditional without setoff or counterclaim,
regardless of contingencies, whether or not a given project is completed or
used by the governmental entity and notwithstanding any circumstances or
occurrences which might arise. In the event of non-appropriation,
certificateholders' or bondowners' sole remedy (absent credit enhancement)
generally is limited to repossession of the collateral for resale or releasing,
and the obligation of the governmental lessee is not backed by a pledge of the
general credit of the governmental lessee. In the event of non-appropriation,
the Sponsors may instruct the Trustee to sell such Bonds.
Moral Obligation Bonds. Certain of the Bonds in the Trust may be
secured by pledged revenues and additionally by the so-called "moral
obligations" of a State or a local governmental body. Should the pledged
revenues prove insufficient, the payment of such Bonds is not a legal
obligation of a State or local government, and is subject to its willingness to
appropriate funds therefor.
B-3
388740.3
<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 Bonds proceeds are not committed for the purpose of the issue,
Bonds in such amount could be subject to earlier mandatory redemption at par,
including issues of Zero Coupon Bonds (see "Original Issue Discount and Zero
Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds of the
Trust may consist of obligations of state and local housing authorities whose
revenues are primarily derived from mortgage loans to housing projects for low
to moderate income families. Since such obligations are not general obligations
of a particular state or municipality and are generally payable primarily or
solely from rents and other fees, adverse economic developments including
failure or inability to increase rentals, fluctuations of interest rates and
increasing construction and operating costs may reduce revenues available to
pay existing obligations.
The housing bonds in the Trust, despite their optional redemption
provisions which generally do not take effect until ten years after the
original issuance dates of such Bonds (often referred to as "ten year call
protection"), do contain provisions which require the issuer to redeem such
obligations at par from unused proceeds of the issue within a stated period. In
recent periods of declining interest rates there have been increased
redemptions of housing bonds pursuant to such redemption provisions. In
addition, the housing bonds in the Trust are also subject to mandatory
redemption in part at par at any time that voluntary or involuntary prepayments
of principal on the underlying mortgages are made to the trustee for such Bonds
or that the mortgages are sold by the bond issuer. Prepayments of principal
tend to be greater in periods of declining interest rates; it is possible that
such prepayments could be sufficient to cause a housing bond to be redeemed
substantially prior to its stated maturity date, earliest call date or sinking
fund redemption date.
Public Power Revenue Bonds. General problems of the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and
operation of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials
and the disposal of radioactive waste; and the effects of energy conservation.
Certain Bonds may have been issued in connection with the financing of nuclear
generating facilities. In view of recent developments in connection with such
facilities, legislative and administrative actions have been taken and proposed
relating to the development and operation of nuclear generating facilities. The
Sponsor is 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.
B-4
388740.3
<PAGE>
Each of the problems referred to above could adversely affect the
ability of the issuers of public power revenue bonds to make payments of
principal of and/or interest on such bonds. Certain municipal utilities or
agencies may have entered into contractual arrangements with investor-owned
utilities and large industrial users and consequently may be dependent in
varying degrees on the performance of such contracts for payment of bond debt
service.
Health Care Revenue Bonds. Some of the aggregate principal amount of
Bonds of the Trust may consist of hospital revenue bonds. Ratings of hospital
bonds are often initially based on feasibility studies which contain
projections of occupancy levels, revenues and expenses. Actual experience may
vary considerably from such projections. A hospital's gross receipts and net
income will be affected by future events and conditions including, among other
things, demand for hospital services and the ability of the hospital to provide
them, physicians' confidence in hospital management capability, economic
developments in the service area, competition, actions by insurers and
governmental agencies and the increased cost and possible unavailability of
malpractice insurance. Additionally, a major portion of hospital revenue
typically is derived from federal or state programs such as Medicare and
Medicaid which have been revised substantially in recent years and which are
undergoing further review at the state and federal level.
Proposals for significant changes in the health care system and the
present programs for third party payment of health care costs are under
consideration in Congress and many states. Future legislation or changes in the
areas noted above, among other things, would affect all hospitals to varying
degrees and, accordingly, any adverse change in these areas may affect the
ability of such issuers to make payment of principal and interest on such
bonds.
Higher Education Revenue Bonds. Higher education revenue bonds include
debt of state and private colleges, universities and systems, and parental and
student loan obligations. The ability of universities and colleges to meet
their obligations is dependent upon various factors, including the revenues,
costs and enrollment levels of the institutions. In addition, their ability may
be affected by declines in Federal, state and alumni financial support,
fluctuations in interest rates and construction costs, increased maintenance
and energy costs, failure or inability to raise tuition or room charges and
adverse results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the pollution
control facilities category include securities issued on behalf of a private
corporation,* including utilities, to provide facilities for the treatment of
air, water and solid waste pollution. Repayment of these bonds is dependent
upon income from the specific pollution control facility and/or the financial
condition of the project corporation.
Other Utility Revenue Bonds. Bonds in this category include securities
issued to finance natural gas supply, distribution and transmission facilities,
public water supply, treatment and distribution facilities, and sewage
collection, treatment and disposal facilities. Repayment of these bonds is
dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this category include
securities issued to finance facilities for removal and disposal of solid
municipal waste. Repayment of these bonds is dependent on factors which
- ------------
* For purposes of the description of users of facilities, all
references to "corporations" shall be deemed to include any other
nongovernmental person or entity.
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<PAGE>
may include revenues from appropriations from a governmental entity, the
financial condition of the private project corporation and revenues derived
from the collection of charges for disposal of solid waste. Repayment of
resource recovery bonds may also be dependent to various degrees on revenues
from the sale of electric energy or steam. Bonds in this category may be
subject to mandatory redemption in the event of project non-completion, if the
project is rendered uneconomical or if it is considered an environmental
hazard.
Transportation Revenue Bonds. Bonds in this category include bonds
issued for airport facilities, bridges, turnpikes, port authorities, railroad
systems, or mass transit systems. Generally, airport facility revenue bonds are
payable from and secured by the revenues derived from the ownership and
operation of a particular airport. Payment on other transportation bonds is
often dependent primarily or solely on revenues from financed facilities,
including user fees, charges, tolls and rents. Such revenues may be adversely
affected by increased construction and maintenance costs or taxes, decreased
use, competition from alternative facilities, scarcity of fuel, reduction or
loss of rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on Federal, state or
local assistance including motor fuel and motor vehicle taxes, fees, and
licenses and, therefore, may be subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of the Trust may contain other
Bonds that are "private activity bonds," which would be primarily of two types:
(1) Bonds for a publicly owned facility that a private entity may have a right
to use or manage to some degree, such as an airport, seaport facility or water
system and (2) Bonds for facilities deemed owned or beneficially owned by a
private entity but which were financed with tax-exempt bonds of a public
issuer, such as a manufacturing facility or a pollution control facility. In
the case of the first type, bonds are generally payable from a designated
source of revenues derived from the facility and may further receive the
benefit of the legal or moral obligation of one or more political subdivisions
or taxing jurisdictions. In most cases of project financing of the first type,
receipts or revenues of the Issuer are derived from the project or the operator
or from the unexpended proceeds of the bonds. Such revenues include user fees,
service charges, rental and lease payments, and mortgage and other loan
payments.
The second type of issue will generally finance projects which are
owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such entities,
and are solely dependent upon the creditworthiness of the corporate user of the
project or corporate guarantor.
The private activity bonds in the Trust have generally been issued
under bond resolutions, agreements or trust indentures pursuant to which the
revenues and receipts payable under the issuer's arrangements with the users or
the corporate operator of a particular project have been assigned and pledged
to the holders of the private activity bonds. In certain cases a mortgage on
the underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds secured
primarily or solely by receipt of certain state or local taxes, including sales
and use taxes or excise taxes. Consequently, such bonds may be subject to
fluctuations in the collection of such taxes. Such bonds do not include tax
increment bonds or special assessment bonds.
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Other Revenue Bonds. Certain of the Bonds in the Trust may be revenue
bonds which are payable from and secured primarily or solely by revenues from
the ownership and operation of particular facilities, such as correctional
facilities, parking facilities, convention centers, arenas, museums and other
facilities owned or used by a charitable entity. Payment on bonds related to
such facilities is, therefore, primarily or solely dependent on revenues from
such projects, including user fees, charges and rents. Such revenues may be
affected adversely by increased construction and maintenance costs or taxes,
decreased use, competition from alternative facilities, reduction or loss of
rents or the impact of environmental considerations.
Certain of the Bonds in the Trust are secured by direct obligations of
the U.S. Government, or in some cases, obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. In a few isolated instances
to date, bonds which were thought to be escrowed to maturity have been called
for redemption prior to maturity.
Original Issue Discount Bonds and Zero Coupon Bonds
Certain of the Bonds in the Trust may be original issue discount bonds
and/or zero coupon bonds. Original issue discount bonds are bonds that were
originally issued at less than the market interest rate. Zero coupon bonds are
original issue discount bonds that do not provide for the payment of current
interest. For Federal income tax purposes, original issue discount on such
bonds must be amortized over the term of such bonds. On sale or redemption, the
difference between the (i) the amount realized (other than amounts treated as
tax-exempt income as described below) and (ii) the tax basis of such bonds
(properly adjusted, in the circumstances described below, for amortization of
original issue discount) will be treated as taxable income or loss. See "The
Trust--Tax Status" in this Part B. The Code requires holders of tax-exempt
obligations issued with original issue discount, such as the Trust, to accrue
tax-exempt original issue discount by using the constant interest method
provided for the holders of taxable obligations. In addition, the Code provides
that the basis of a tax-exempt obligation is increased by the amount of accrued
tax-exempt original issue discount. These provisions are applicable to
obligations issued after September 3, 1982 and acquired after March 1, 1984.
Each Trust's tax basis in a Bond is increased by any accrued original issue
discount as is a Unit holder's tax basis in his Units. For Bonds issued after
June 9, 1980 that are redeemed prior to maturity, the difference between the
Trust's basis, as adjusted, and the amount received will be taxable gain or
loss to the Unit holders. All or a portion of any gain may be taxable as
ordinary income.
There can be no assurance that additional Federal legislation will not
be enacted or that existing legislation will not be amended hereafter with the
effect that all or a portion of interest on bonds becomes subject to Federal
income taxation. If the interest on the Bonds in the Trust should ultimately be
deemed to be taxable, the Trustee may sell them and, since they would be sold
as taxable securities, it is expected that they would have to be sold at a
substantial discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption prior to
their stated maturity date pursuant to sinking fund or call provisions. A
sinking fund is a reserve fund accumulated over a period of time for retirement
of debt. Sinking fund provisions are designed to redeem a significant portion
of an issue gradually over the life of the issue. Obligations to be redeemed
are generally chosen by lot. On the Date of Deposit, the offering valuations of
some of the Bonds in the Trust may have been at a premium and subject to
retirement or refunding within ten years of the Date of Deposit. A callable
debt obligation is one which is subject to redemption prior to maturity at the
option of the
B-7
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<PAGE>
issuer. To the extent that obligations are deposited in the Trust at a price
higher than their par value, such redemption at par would result in a loss of
capital to a purchaser of Units at their original public offering price. The
estimated current return of the Units might also be adversely affected if the
return on the retired Bonds is greater than the average return on the Bonds in
the Trust. In general, call provisions are more likely to be exercised when the
offering side valuation is at a premium over par than when it is at a discount
from par. See "The Portfolio" in Part A for a list of original issue discount
and/or zero coupon bonds and for a breakdown of the percentage of Bonds in the
Trust with offering side valuations at a premium, discount or at par. See also
"Estimated Current Return and Estimated Long Term Return" in Part A. The
portfolio contains a listing of the sinking fund and call provisions, if any,
with respect to each of the Bonds therein.
Substitution of Bonds
In the event of a failure to deliver any Bond that has been purchased
for the Trust under a contract, including those Bonds purchased on a "when, as
and if issued" basis ("Failed Bonds"), the Sponsor is authorized to purchase
other bonds ("Replacement Bonds") which the Trustee shall pay for out of funds
held in connection with the Failed Bonds and to accept delivery of the
Replacement Bonds to make up the original corpus of the Trust. The Replacement
Bonds must be purchased within 20 days after delivery of the notice of the
failed contract, and the purchase price (exclusive of accrued interest) may not
exceed the principal attributable to the Failed Bonds. The Replacement Bonds
(i) must be tax-exempt bonds issued by states or counties, municipalities,
authorities or political subdivisions thereof or issued by certain United
States territories or possessions or their public authorities as described in
the first paragraph under "Portfolio," (ii) must have a fixed maturity date not
exceeding the maturity date of the Failed Bonds and not less than ten years
after the date of purchase, (iii) shall be purchased at a price that results in
a yield to maturity and a current return, in each case as of the Date of
Deposit, at least equal to the yield to maturity and the current return of the
Failed Bonds, (iv) shall not be "when issued" bonds, (v) must be insured by an
Insurance Company and have the benefit of such insurance under terms equivalent
to the insurance of the Insurance Company with respect to the Failed Bonds, and
(vi) must be rated at least equal to the Failed Bonds. Whenever a Replacement
Bond has been acquired for the Trust, the Trustee shall, within five days
thereafter, notify all Unit holders of the Trust of the acquisition of the
Replacement Bond and shall, on the next monthly Payment Date which is more than
30 days thereafter, make a pro rata distribution of the amount, if any, by
which the cost to the Trust of the Failed Bond exceeded the cost of the
Replacement Bond. Once the original corpus of the Trust is acquired, the
Trustee will have no power to vary the investment of the Trust, i.e., the
Trustee will have no managerial power to take advantage of market variations to
improve a Unit holder's investment.
If the right of limited substitution described in the preceding
paragraph shall not be utilized to acquire Replacement Bonds in the event of a
failed contract, the Sponsor will refund the sales charge attributable to such
Failed Bonds to all Unit holders of the Trust, and distribute the principal and
accrued interest (at the coupon rate of such Failed Bond, or earned original
issue discount in the case of zero coupon bonds, from the Deposit Date to the
date the Sponsor notifies the Trustee that it will not purchase Replacement
Bonds) attributable to such Failed Bonds on the next monthly Payment Date which
is more than 30 days thereafter. In the event a Replacement Bond is not
acquired by the Trust, the Estimated Net Annual Interest Income per Unit for
the Trust would be reduced and the Estimated Current Return thereon might be
lowered.
Other Matters
An amendment to the Federal Bankruptcy Act relating to the adjustment
of indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among
B-8
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<PAGE>
other things, this amendment facilitates the use of proceedings under the
Federal Bankruptcy Act by any such entity to restructure or otherwise alter the
terms of its obligations, including those of the type comprising the Trust's
portfolio. The Sponsor is unable to predict at this time what effect, if any,
this legislation will have on the Trust.
To the best knowledge of the Sponsor, there is no litigation pending
as of the Date of Deposit in respect of any Securities which might reasonably
be expected to have a material adverse effect upon the Trust. At any time after
the Date of Deposit, litigation may be initiated on a variety of grounds with
respect to Securities in the Trust. Such litigation as, for example, suits
challenging the issuance of pollution control revenue bonds under recently
enacted environmental protection statutes, may affect the validity of such
Securities or the tax-free nature of the interest thereon. While the outcome of
such litigation can never be entirely predicted with certainty, bond counsel
has given or will give opinions to the issuing authorities of each Bond on the
date of issuance to the effect that such Securities have been validly issued
and that the interest thereon is exempt from regular Federal income tax. In
addition, other litigation or other factors may arise from time to time which
potentially may impair the ability of issuers to meet obligations undertaken
with respect to Securities.
PUBLIC OFFERING
Offering Price
The price of the Units of the Trust as of the Date of Deposit was
determined by adding to the Evaluator's determination of the aggregate offering
price of the Securities per Unit a sales charge of 4.95% thereof equal to
5.208% of the Public Offering Price. During the initial public offering period,
sales of at least 250 Units will be entitled to a volume discount from the
Public Offering Price as described below. For purchases settling after the
First Settlement Date, a proportionate share of accrued and undistributed
interest on the Securities at the date of delivery of the Units to the
purchaser is also added to the Public Offering Price.
During the initial offering period the aggregate offering price of the
Securities in the Trust is determined by the Evaluator (1) on the basis of
current offering prices for the Securities,* (2) if offering prices are not
available for any Securities, on the basis of current offering prices for
comparable securities, (3) by making an appraisal of the value of the
Securities on the basis of offering prices in the market, or (4) by any
combination of the above. Such determinations are made each business day during
the initial public offering period as of the Evaluation Time set forth in the
"Summary of Essential Financial Information" in Part A, effective for all sales
made subsequent to the last preceding determination. For information relating
to the calculation of the Redemption Price, which is based upon the aggregate
bid price of the underlying Securities and which may be expected to be less
than the aggregate offering price, see "Rights of Unit Holders--Redemption" in
Part B. See also "Rights of Unit Holders--Certificates" in Part B for
information relating to redemption of Units.
- --------
* With respect to the evaluation of Bonds during the initial syndicate
offering period for such Bonds, the "current offering price," as determined
by the Evaluator, will normally be equal to the syndicate offering price as
of the Evaluation Time, unless the Evaluator determines that a material
event has occurred which it believes may result in the syndicate offering
price not accurately reflecting the market value of such Bonds, in which
case the Evaluator, in making its determination with respect to such Bonds,
will consider not only the syndicate offering price but also the factors
described in (2) and (3) herein.
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The secondary market Public Offering Price of the Units of the Trust
is based on the aggregate bid price of the Bonds in the Trust (as determined by
the Evaluator) plus a sales charge determined in accordance with the schedule
set forth below, which is based upon the maturities of each Bond in the Trust.
The Sponsor has implemented this variable format as a more equitable method of
assessing the sales charge for secondary market purchases. For purposes of
computation, Bonds will be deemed to mature on their expressed maturity dates
unless the Evaluator evaluates the price of the Bonds to a different date such
as a call date or a mandatory tender date, in which case the maturity will be
deemed to be such other date.
This method of sales charge computation will apply different sales
charge rates to each Bond in the Trust based upon the maturity of each such
Bond in accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Market
Period Sales Change
-------------------------------------------------------
Percentage of Percentage of
Public Offering Net Amount
Per Bond Price Invested
------------------------ -------------------------
<S> <C> <C>
Years to Maturity Per Bond
0 Months to 2 years.................................. 1.0% 1.010%
2 but less than 3.................................... 2.0% 2.091%
3 but less than 4.................................... 3.0% 3.093%
4 but less than 8.................................... 4.0% 4.167%
8 but less than 12................................... 5.0% 5.363%
12 but less than 15.................................. 5.5% 5.820%
15 or more........................................... 5.9% 6.270%
</TABLE>
A minimum sales charge of 1.0% of the Public Offering Price will be
applied to all secondary market unit purchases.
During the initial public offering period, purchasers of 250 Units or
more will be entitled to a volume discount from the Public Offering Price as
set forth in the table below:
<TABLE>
<CAPTION>
Discount From
Public Offering
Number of Units Price Per Unit
--------------- ----------------
<S> <C>
250-499......................................... $2.50
500-999......................................... 7.50
1,000-1,999..................................... 15.00
2,000 or more................................... 20.00
</TABLE>
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Except as discussed under "Distribution of Units" below, the above
volume discount will be the responsibility of the Selling Underwriter or dealer
and will apply on all purchases at any one time by the same person of Units in
the Trust in the amounts stated. Units held in the name of the spouse of the
purchaser or in the name of a child of the purchaser under 21 years of age are
deemed for the purposes hereof to be registered in the name of the purchaser.
The graduated sales charges are also applicable to a trustee or other fiduciary
purchasing Units for a single trust estate or single fiduciary account.
Certain commercial banks may be 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 such 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.
Market for Units
Although it is not obligated to do so, the Sponsor intends to maintain
a market for the Units of the Trust and continuously to offer to purchase Units
of the Trust during the initial offering period at prices based upon the
aggregate offering price of the Securities in the Trust; and thereafter at
prices based on the aggregate bid price of the related Securities. After the
initial offering period the Sponsor's Repurchase Price shall be not less than
the Redemption Price plus accrued interest through the expected date of
settlement. (See "Rights of Unit Holders--Redemption-- Computation of
Redemption Price per Unit" in Part B). There is no sales charge incurred when a
Unit holder sells Units back to the Sponsors. Any Units repurchased by the
Sponsor may be reoffered to the public by the Sponsor 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 Sponsor may discontinue purchases of Units of such Series
at prices based on the aggregate bid price of the Securities. The Sponsor does
not in any way guarantee the enforceability, marketability, or price of any
Security in the portfolio or of the Units of the Trust. In the event that a
market is not maintained for the Units of the Trust, a Unit holder desiring to
dispose of his Units may be able to do so only by tendering such Units to the
Trustee for redemption at the Redemption Price, which is based upon the
aggregate bid price of the underlying Securities. The aggregate bid price of
the Securities in the Trust may be expected to be less than the aggregate
offering price. If a Unit holder wishes to dispose of his Units, he should
inquire of the Sponsor as to current market prices prior to making a tender for
redemption to the Trustee.
See "Rights of Unit Holders--Redemption" and "Sponsors" in Part B.
Distribution of Units
It is the Underwriter's intention to qualify Units of the Trust for
sale in certain of the states and to effect a public distribution of the Units
solely through its own organization. Sales will be made only with respect to
whole Units, and the Sponsor reserves the right to reject, in whole or in part,
any order for the purchase of Units.
Sponsor's and Underwriter's Profits
As set forth under "Public Offering--Offering Price" in Part B, the
Underwriter will receive gross commissions equal to the specified percentages
of the Public Offering Price of the Units of the Trust. The Sponsor will
receive from the Underwriter the excess of such gross sales commission over $40
per Unit.
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In addition, the Sponsor realizes a profit or sustain a loss, as the
case may be, in the amount of any difference between the cost of the Securities
to the Trust (which is based on the aggregate offering price of the Securities
on the Date of Deposit) and the purchase price of such Securities to the
Sponsor (which is the cost of such Securities at the time they were acquired
for the account of the Trust). See "Summary of Essential Financial Information"
in Part A. In addition, the Sponsor may realize profits or sustain losses with
respect to Bonds deposited in the Trust which were acquired from the Sponsor or
from underwriting syndicates of which it was a member. During the initial
offering period, the Underwriters also may realize profits or sustain losses as
a result of fluctuations after the Date of Deposit in the offering prices of
the Securities and hence in the Public Offering Price received by the
Underwriters for Units. Cash, if any, made available to the Sponsor prior to
the settlement date for the purchase of Units of the Trust may be used in the
Sponsor's businesses, subject to the limitations of the Securities Exchange Act
of 1934 and may be of benefit to the Sponsor.
The Sponsor may have participated as underwriter or as manager or
member of underwriting syndicates from which some of the aggregate principal
amount of the Bonds were acquired for the Trust in the amounts set forth in
Part A. The Sponsor has not purchased any of the Securities in the Trust from
their managed accounts.
In maintaining a market for the Units of the Trust (see "Market for
Units") the Sponsor and the Underwriter will also realize profits or sustain
losses in the amount of any difference between the price at which they buy
Units and the price at which they resell or redeem such Units and to the extent
they earn sales charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In contrast,
tax-exempt bonds customarily are offered on a "yield price" basis. Therefore,
the rate of return on each Unit is measured in terms of both Estimated Current
Return and Estimated Long-Term Return. Estimated Current Return based on the
Public Offering Price per Unit and Estimated Long-Term Return per Unit, each as
of the business day prior to the Date of Deposit, is set forth under "Summary
of Essential Financial Information " in Part A. Information regarding the
estimated monthly distributions of principal and interest to Unit holders of
the Trust is available from the Sponsor on request.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. Estimated Net
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit will vary with
changes in the offering price of the Bonds. Estimated Current Return takes into
account only the interest payable on the Bonds and does not involve a
computation of yield to maturity or to an earlier redemption date nor does it
reflect any amortization of premium or discount from par value in the Bond's
purchase price. Moreover, because interest rates on Bonds purchased at a
premium are generally higher than current interest rates on newly issued bonds
of a similar type with comparable ratings, the Estimated Current Return per
Unit may be affected adversely if such Bonds are redeemed prior to their
maturity. Therefore, there is no assurance that the Estimated Current Return as
set forth under "Summary of Essential Financial Information" in Part A will be
realized in the future.
Estimated Long-Term Return is calculated using a formula that (i)
takes into consideration, and determines and factors in the relative weightings
of, the market values, yields (taking into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all the Bonds in
the Trust and (ii) takes into account the
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expenses and sales charge associated with each Unit of the Trust. The Estimated
Long-Term Return assumes that each Bond is retired on its pricing life date
(i.e., that date which produces the lowest dollar price when yield price
calculations are done for each optional call date and the maturity date of a
callable security). If the Bond is retired on any optional call or maturity
date other than the pricing life date, the yield to the holder of that Bond
will be greater than the initial quoted yield. Since the market values and
estimated retirements of the Bonds, the expenses of the Trust and the Net
Annual Interest Income and Public Offering Price per Unit may change, there is
no assurance that the Estimated Long-Term Return as set forth under "Summary of
Essential Financial Information" in Part A will be realized in the future.
INSURANCE ON THE BONDS
Each of the Bonds in the Trust is insured by a municipal bond guaranty
insurance policy obtained by the issuer, underwriter or prior owner of the
Bonds ("Pre-Insured Bonds"), and issued by one of the insurance companies
described below (the "Insurance Companies"). The insurance policies are
non-cancelable and will continue in force so long as the Bonds are outstanding
and the insurers remain in business. The insurance policies guarantee the
timely payment of principal and interest on the Bonds but do not guarantee the
market value of the Bonds or the value of the Units. No representation is made
herein as to any Bond insurer's ability to meet its obligations under a policy
of insurance relating to any of the Bonds. An insurance company that is
required to pay interest and/or principal in respect of any Bond will succeed
and be subrogated to the Trustee's right to collect such interest and/or
principal from the issuer and to other related rights of the Trustee with
respect to any such Bond.
Such insurance covers the scheduled payment of principal thereof and
interest thereon when such amounts shall become due for payment but shall not
have been paid by the issuer or any other insurer thereof. The insurance will
also cover any accelerated payments of principal and any increase in interest
payments or premiums, if any, payable upon mandatory redemption of the Bonds if
interest on any Bonds is ultimately deemed to be subject to regular federal
income tax. None of the insurance will cover accelerated payments of principal
or penalty interest or premiums unrelated to taxability of interest on the
Bonds. The insurance relates only to the prompt payment of principal of and
interest on the securities in the portfolios, and does not remove market risks
nor does it guarantee the market value of Units in the Trusts. The terms of the
insurance are more fully described herein. No representation is made herein as
to any Bond insurer's ability to meet its obligations under a policy of
insurance relating to any of the Pre-Insured Bonds. In addition, investors
should be aware that subsequent to the Date of Deposit the rating of the
claims-paying ability of the insurer of an underlying Pre-Insured Bond may be
down-graded.
All of the Bonds in the Trust which are insured under policies
obtained by the Bond issuers, underwriters or prior owners of the Bonds are
insured either by AMBAC Indemnity Corporation ("AMBAC"), Connie Lee Insurance
Company ("Connie Lee"), Financial Guaranty Insurance Company ("Financial
Guaranty"), Financial Security Assurance, Inc. ("Financial Security"),
Municipal Bond Insurance Association ("MBIA") or MBIA Insurance Corporation
("MBIA Corp.") (collectively the "Insurance Companies"). The cost of this
insurance is borne by the respective issuers, underwriters or prior owners of
the Pre-Insured Bonds. The percentage of each Portfolio insured by each
insurance company, if any, is set forth under "Insurance" in Part A of this
Prospectus.
AMBAC is a Wisconsin-domiciled stock insurance corporation, regulated
by the Office of the Commissioner of Insurance of the State of Wisconsin, and
licensed to do business in 50 states, the District of Columbia, the Territory
of Guam and the Commonwealth of Puerto Rico, with admitted assets (unaudited)
of approximately $2,505,000,000,
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and statutory capital (unaudited) of approximately $1,384,000,000 as of June
30, 1996. Statutory capital consists of the statutory contingency reserve and
policyholders' surplus of the insurance company. AMBAC is a wholly owned
subsidiary of AMBAC Inc., a 100% publicly-held company. Standard & Poor's,
Moody's and Fitch have each assigned a triple-A claims paying ability rating to
AMBAC.
AMBAC has entered into pro rata reinsurance agreements under which a
percentage of the insurance underwritten pursuant to certain municipal bond
insurance programs of AMBAC has been and will be assumed by a number of foreign
and domestic unaffiliated reinsurers.
AMBAC has obtained a ruling from the Internal Revenue Service to the
effect that the insuring of an obligation by AMBAC will not affect the
treatment for federal income tax purposes of interest on such obligation and
that insurance proceeds representing maturing interest paid by AMBAC under
policy provisions substantially identical to those contained in its municipal
bond insurance policy shall be treated for federal income tax purposes in the
same manner as if such payments were made by issuer of the Bonds.
Connie Lee, a stock insurance company incorporated in Wisconsin, is a
wholly-owned subsidiary of College Construction Loan Insurance Association, a
stockholder-owned District of Columbia insurance holding company whose creation
was authorized by the 1986 amendments to the Higher Education Act. The United
States Department of Education and Student Loan Marketing Association are
founding shareholders of College Construction Loan Insurance Association. As a
federally authorized company, Connie Lee's structure and operational
authorities are subject to revision by amendments to the Higher Education Act
or other federal enactments. CONNIE LEE IS NOT AN AGENCY OR INSTRUMENTALITY OF
THE UNITED STATES GOVERNMENT, ALTHOUGH THE UNITED STATES GOVERNMENT IS A
STOCKHOLDER OF COLLEGE CONSTRUCTION LOAN INSURANCE ASSOCIATION. THE OBLIGATIONS
OF CONNIE LEE ARE NOT OBLIGATIONS OF THE UNITED STATES GOVERNMENT.
As of June 30, 1996, the total policyholders' surplus of Connie Lee
was $112,734,947 (unaudited) and total admitted assets were $219,098,333
(unaudited), as reported to the Commissioner of Insurance of the State of
Wisconsin.
As of the Evaluation Date, the claims-paying ability of Connie Lee has
been rated "AAA" by Standard & Poor's.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation
("FGIC"), a Delaware holding company. FGIC is a wholly-owned subsidiary of
General Electric Capital Corporation ("GECC"). Neither FGIC nor GECC is
obligated to pay the debts of or the claims against Financial Guaranty.
Financial Guaranty is domiciled in the State of New York and is subject to
regulation by the State of New York Insurance Department. As of June 30, 1996,
the total capital and surplus of Financial Guaranty was approximately
$1,069,597,000. In addition, Financial Guaranty is currently licensed to write
insurance in 50 states and the District of Columbia.
As of the Evaluation Date, the claims-paying ability of Financial
Guaranty has been rated "AAA" by Standard & Poor's.
Financial Security is a monoline insurance company incorporated in
1984 under the laws of the State of New York and is licensed to engage in the
financial guaranty insurance business in all 50 states, the District of
Columbia and Puerto Rico.
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<PAGE>
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings,
Inc., US WEST Capital Corporation and The Tokio Marine and Fire Insurance Co.,
Ltd. No shareholder of Holdings is obligated to pay any debt of Financial
Security or any claim under any insurance policy issued by Financial Security
or to make any additional contribution to the capital of Financial Security.
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by Financial
Security or any of its domestic operating insurance company subsidiaries are
reinsured among such companies on an agreed upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with other reinsurers under various quota-share treaties and
on a transaction-by-transaction basis. Such reinsurance is utilized by
Financial Security as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit Financial
Security's obligations under any financial guaranty insurance policy. As of
June 30, 1996, total shareholders equity of Financial Security and its
wholly-owned subsidiaries was (unaudited) $785,072,000 and total unearned
premium reserves was (unaudited) $351,180,000.
As of the Evaluation Date, Financial Security's claims-paying ability
has been rated "AAA" by Standard & Poor's.
MBIA is an association of five insurance companies which joined
together to insure severally (and not jointly) new issues of municipal bonds.
Each insurance company comprising Municipal Bond Insurance Association ("MBIA",
also known as the "Association") will be severally and not jointly obligated
under the MBIA policy in the following respective percentages: The Aetna
Casualty and Surety Company, 33%; Fireman's Fund Insurance Company, 30%; The
Travelers Indemnity Company, 15%; Aetna Insurance Company*, 12%; and The
Continental Insurance Company, 10%. As a several obligor, each such insurance
company will be obligated only to the extent of its percentage of any claim
under the MBIA policy and will not be obligated to pay any unpaid obligation of
any other member of MBIA. Each insurance company's participation is backed by
all of its assets. However, each insurance company is a multiline insurer
involved in several lines of insurance other than municipal bond insurance, and
the assets of each insurance company also secure all of its other insurance
policy and surety bond obligations.
Some of the members of the Association are among the shareholders of
MBIA, Inc. MBIA, Inc., the parent of MBIA Corp., has no liability to the
bondholders for the obligations of the Association.
The following table sets forth certain financial information with
respect to the five insurance companies comprising MBIA. The statistics, which
have been furnished by MBIA, are as reported by the insurance companies to the
New York State Insurance Department and are determined in accordance with
statutory accounting principals. 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. In
addition, these numbers are subject to revision by the New York State Insurance
Department which, if revised, could either increase or decrease the amounts.
- -------------------------
* Now known as Cigna Property and Casualty Company.
B-15
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<PAGE>
MUNICIPAL BOND INSURANCE ASSOCIATION ("MBIA")
FIVE MEMBER COMPANIES ASSETS, LIABILITIES
AND POLICYHOLDERS' SURPLUS
AS OF MARCH 31, 1995
(000's omitted)
<TABLE>
<CAPTION>
New York New York New York
Statutory Statutory Policyholder's
Assets Liabilities Surplus
<S> <C> <C> <C>
The Aetna Casualty & Surety Company $10,225,604 $ 8,312,158 $1,913,446
Fireman's Fund Insurance Company 7,126,217 5,116,059 2,010,158
The Travelers Indemnity Company 10,461,356 8,654,130 1,807,226
Cigna Property and Casualty Company 4,260,177 3,637,513 622,664
(Formerly Aetna Insurance Company)
The Continental Insurance Company 3,060,583 2,380,723 679,860
----------- ----------- ----------
TOTAL $35,133,937 $28,100,583 $7,033,354
</TABLE>
MBIA Insurance Corporation (formerly known as Municipal Bond Investors
Assurance Corporation) ("MBIA Corp.") is the principal operating subsidiary of
MBIA Inc., a New York Stock Exchange listed company. MBIA Corp. commenced
municipal bond insurance operations on January 5, 1987. MBIA Corp. is
domiciled, in the State of New York and licensed to do business in 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. MBIA Corp. is a separate and distinct entity
from the Association. MBIA Corp. has no liability to the bondholders for the
obligations of the Association under the policy.
As of June 30, 1996, MBIA Corp. had admitted assets of $4.2 billion
(unaudited), total liabilities of $2.8 billion (unaudited), and total capital
and surplus of $1.4 billion (unaudited) prepared in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1995, MBIA Corp. had admitted assets of $3.8
billion (audited), total liabilities of $2.5 billion (audited), and total
capital and surplus of $1.3 billion (audited).
As of the Evaluation Date, the claims-paying ability of MBIA and MBIA
Corp. has been rated "AAA" by Standard & Poor's and Fitch, and "Aaa" by
Moody's.
The foregoing information relating to the above insurance companies is
from published documents and other public sources and/or information provided
by such insurance companies. 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 dates thereof, but the
Sponsor is not aware that the information herein is inaccurate or incomplete.
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<PAGE>
TAX STATUS
Interest income on the Bonds contained in the portfolio of the Trust
is, in the opinion of bond counsel to the issuing governmental authorities,
which opinion was rendered at the time of original issuance of the Bonds,
excludible from gross income under the Code. See "The Trust" in Part A.
Gain (or loss) realized on sale, maturity, or redemption of the Bonds
or on sale or redemption of a Unit is, however, includible in gross income as
capital gain (or loss) for Federal, state and local income tax purposes
assuming that the Unit is held as a capital asset. Such gain (or loss) does not
include any amount received in respect of accrued interest. In addition, such
gain (or loss) may be long or short term depending on the holding period of the
Units. Bonds selling at a market discount tend to increase in market value as
they approach maturity when the principal amount is payable, thus increasing
the potential for taxable gain (or reducing the potential for loss) on their
redemption, maturity, or sale. Gain on the disposition of a Bond purchased at a
market discount generally will be treated as ordinary income, rather than
capital gain, to the extent of accrued market discount. The deductibility of
capital losses is limited to the amount of capital gain; in addition, up to
$3,000 of capital losses of noncorporate Unit holders may be deducted against
ordinary income. Since the proceeds from sales of Bonds, under certain
circumstances, may not be distributed pro-rata, the Unit holder's taxable
income for any year may exceed their actual cash distributions in that year.
In the opinion of Battle Fowler LLP, special counsel for the Sponsor,
under existing law:
The Trust is not an association taxable as a corporation for
Federal income tax purposes, and interest on the Bonds which is
excludible from regular Federal gross income under the Code, when
received by the Trust, will be excludible from the regular Federal
gross income of the Unit holders of the Trust. Any proceeds paid under
the insurance policy described above issued to the Trust with respect
to the Bonds and any proceeds paid under individual policies obtained
by issuers of Bonds or other parties which represent maturing interest
on defaulted obligations held by the Trust will be excludible from
Federal gross income if, and to the same extent as, such interest
would have been so excludible if paid in the normal course by the
issuer of the defaulted obligations.
Each Unit holder will be considered the owner of a pro rata
portion of the Bonds and any other assets held in the Trust under the
grantor trust rules of Code Sections 671-679. Each Unit holder will be
considered to have received his pro rata share of income from Bonds
held by the Trust on receipt (or earlier accrual, depending on the
Unit holder's method of accounting and depending on the existence of
any original issue discount) by the Trust, and each Unit holder will
have a taxable event when an underlying Bond is disposed of (whether
by sale, redemption, or payment at maturity) or when the Unit holder
redeems or sells his Units. Gain from a sale will be treated as short
term or long term capital gain depending on how long the Bond was held
by the Trust. The total tax basis (i.e., cost) of each Unit to a Unit
holder is allocated among each of the Bonds held in the Trust (in
accordance with the proportion of the Trust comprised by each such
Bond) in order to determine his per Unit tax basis for each Bond, and
the tax basis reduction requirements of the Code relating to
amortization of bond premium will apply separately to the per Unit
cost of each such Bond. Therefore, under some circumstances, a Unit
holder may realize taxable gain when his Units are sold or redeemed
for an amount equal to his original cost. No deduction is allowed for
the amortization of bond premium on tax-exempt bonds such as the
Bonds. None of the interest received from the portfolio is subject
B-17
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<PAGE>
to the alternative minimum tax for individuals; however, some or all
of the interest received from the portfolio may be includible in the
calculation of a corporation's alternative minimum tax.
For Federal income tax purposes, when a Bond is sold, a Unit
holder may exclude from his share of the amount received any amount
that represents accrued interest but may not exclude amounts
attributable to market discount. Thus, when a Bond is sold by the
Trust, taxable gain or loss will equal the difference between (i) the
amount received (excluding the portion representing accrued interest)
and (ii) the adjusted basis (including any accrued original issue
discount, limited in the case of Bonds issued after June 8, 1980 to
the portion earned from the date of acquisition, as discussed below).
In the case of Bonds acquired at a market discount, gain will be
treated as ordinary income to the extent of accrued market discount.
A Unit holder may also realize taxable gain or loss when a
Unit is sold or redeemed. Taxable gain will result if a Unit is sold
or redeemed for an amount greater than its adjusted basis to the Unit
holder. The amount received when a Unit is sold or redeemed is
allocated among all the Bonds in the Trust in the same manner as when
the Trust disposes of Bonds, and the Unit holder may exclude accrued
interest, including the earned portion of any original issue discount,
but not amounts attributable to market discount. In the case of Bonds
acquired at a market discount gain will be treated as ordinary income
to the extent of accrued market discount. The return of a Unit
holder's tax basis is otherwise a tax-free return of capital.
If the Trust purchases any units of a previously issued
series then, based on the opinion of counsel with respect to such
series, the Trust's pro rata ownership interest in the bonds of such
series (or any previously issued series) will be treated as though it
were owned directly by the Trust.
Under the income tax laws of the State and City of New York,
the Trust is not an association taxable as a corporation and the
income of the Trust will be treated as the income of the Unit holders.
The above opinion of Battle Fowler LLP as to the tax status of the
Trust is not affected by the provision of the Trust Agreement that authorizes
the acquisition of Replacement Bonds or by the implementation of the option
automatically to reinvest principal and interest distributions from the Trust
pursuant to the Automatic Accumulation Plan, described under "Automatic
Accumulation Account" in this Part B.
Among other things, the Code provides for the following: (1) interest
on certain private activity bonds issued after August 7, 1986 is included in
the calculation of the individual's alternative minimum tax (currently taxed at
a rate of up to 28%); none of the Bonds in the Trust is a Private Activity Bond
the interest on which is subject to the alternative minimum tax; (2) interest
on certain Private Activity Bonds issued after August 7, 1986 is included in
the calculation of the corporate alternative minimum tax and 75% of the amount
by which adjusted current earnings (including interest on all tax-exempt bonds,
such as the Bonds) exceed alternative minimum taxable income, as modified for
this calculation, will be included in alternative minimum taxable income.
Interest on the Bonds is includible in the adjusted current earnings of a
corporation for purposes of such alternative minimum tax. The Code does not
otherwise require corporations, and does not require taxpayers other than
corporations, including individuals, to treat interest on the Bonds as an item
of tax preference in computing an alternative minimum tax; (3) subject to
certain exceptions, no financial institution is allowed a deduction for that
portion of the institution's interest expense allocable to tax-exempt interest
on tax-exempt bonds acquired after August 7, 1986; (4) the amount of the
deduction allowed to property and casualty insurance companies for underwriting
loss is decreased by an amount determined with regard to tax-exempt interest
income and the deductible portion of dividends received by such companies; (5)
all taxpayers are required to report for informational purposes on their
Federal income tax returns the amount of tax-exempt interest they receive;
B-18
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<PAGE>
(6) an issuer must meet certain requirements on a continuing basis in order for
interest on a tax-exempt bond to be tax-exempt, with failure to meet such
requirements resulting in the loss of tax exemption; and (7) a branch profits
tax on U.S. branches of foreign corporations is implemented which, because of
the manner in which the branch profits tax is calculated, may have the effect
of subjecting the U.S. branch of a foreign corporation to Federal income tax on
the interest on bonds otherwise exempt from such tax.
Section 86 of the Code provides that a portion of social security
benefits is includible in taxable income for taxpayers whose "modified adjusted
gross income" combined with a portion of their social security benefits exceeds
a base amount. The base amount is $25,000 for an individual, $32,000 for a
married couple filing a joint return and zero for married persons filing
separate returns. Under Section 86 of the Code, interest on tax-exempt bonds is
to be added to adjusted gross income for purposes of determining whether an
individual's income exceeds the base amount above which a portion of the
benefits would be subject to tax.
In addition, certain "S Corporations", with accumulated earnings and
profits from Subchapter C years, may be subject to minimum tax on excess
passive income, including tax-exempt interest, such as interest on the Bonds.
At the time of the original issuance of the Bonds held by the Trust,
opinions relating to the validity of the Bonds and the exemption of interest
thereon from regular Federal income tax were or (with respect to "when issued"
Bonds) were to be rendered by bond counsel to the issuing governmental
authorities. Neither the Sponsor nor its special counsel have made any review
of proceedings relating to the issuance of such Bonds or the basis for bond
counsel's opinions.
Under Section 265 of the Code, if borrowed funds are used by a Unit
holder to purchase or carry Units of the Trust, interest on such indebtedness
will not be deductible for Federal income tax purposes. Under rules used by the
Internal Revenue Service, the purchase of Units may be considered to have been
made with borrowed funds even though the borrowed funds are not directly
traceable to the purchase of Units. Similar rules are applicable for purposes
of state and local taxation. Also, under Section 291 of the Code, certain
financial institutions that acquire Units may be subject to a reduction in the
amount of interest expense that would otherwise be allowable as a deduction for
Federal income tax purposes. Investors with questions regarding this issue
should consult with their tax advisors.
The Trust may contain Bonds issued with original issue discount. The
Code requires holders of tax-exempt obligations issued with original issue
discount, such as the Trust, to accrue tax-exempt original issue discount by
using the constant interest method provided for the holders of taxable
obligations and to increase the basis of a tax-exempt obligation by the amount
of accrued tax-exempt original issue discount. These provisions are applicable
to obligations issued after September 3, 1982 and acquired after March 1, 1984.
The Trust's tax basis in a Bond is increased by any accrued original issue
discount as is a Unit holder's tax basis in his Units. For Bonds issued after
June 9, 1980 that are redeemed prior to maturity, the difference between the
Trust's basis, as adjusted, and the amount received will be taxable gain or
loss to the Unit holders.
Unit holders should consult their own tax advisors with respect to the
state and local tax consequences of owning original issue discount bonds. It is
possible that under applicable provisions governing determination of such state
and local taxes, interest on tax-exempt bonds such as any Bonds issued with
original issue discount may be deemed to be received in the year of accrual
even though there is no corresponding cash payment.
If a Unit holder's tax cost for his pro rata interest in a Bond
exceeds his pro rata interest in the Bond's face amount, the Unit holder will
be considered to have purchased his pro rata interest in the Bond at a
"premium." The
B-19
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<PAGE>
Unit holder will be required to amortize any premium relating to his pro rata
interest in a Bond prior to the maturity of the Bond. Amortization of premium
on a Bond will reduce a Unit holder's tax basis for his pro rata interest in
the Bond, but will not result in any deduction from the Unit holder's income.
Thus, for example, a Unit holder who purchases a pro rata interest in a Bond at
a premium and resells it at the same price will recognize taxable gain equal to
the portion of the premium that was amortized during the period the Unit holder
is considered to have held such interest.
Bond premium must be amortized under the method the Unit holder
regularly employs for amortizing bond premium (assuming such method is
reasonable). With respect to a callable bond, the premium must be computed with
respect to the call price and be amortized to the first call date (and
successively to later call dates based on the call prices for those dates).
In the case of Bonds that are private activity bonds, the opinions of
bond counsel to the respective issuing authorities indicate that interest on
such Bonds is exempt from regular federal income tax. However, interest on such
Bonds will not be exempt from regular federal income tax for any period during
which such Bonds are held by a "substantial user" of the facilities financed by
the proceeds of such Bonds or by a "related person" thereof within the meaning
of the Code. Therefore, interest on any such Bonds allocable to a Unit holder
who is such a "substantial user" or "related person" thereof will not be
tax-exempt. Furthermore, in the case of Bonds that qualify for the "small
issue" exemption, the "small issue" exemption will not be available or will be
lost if, at any time during the three-year period beginning on the later of the
date the facilities are placed in service or the date of issue, all outstanding
tax-exempt IRBs, together with a proportionate share of any present issue, of
an owner or principal user (or related person) of the facilities was determined
to have exceeded $40,000,000 on the date of issue. In the case of Bonds issued
under the $10,000,000 "small issue" exemption, interest on such Bonds will
become taxable if the face amount of the Bonds plus certain capital
expenditures exceeds $10,000,000 within 3 years of the date of issue of such
Bonds.
In addition, a Bond can lose its tax-exempt status as a result of
other subsequent but unforeseeable events such as prohibited "arbitrage"
activities by the issuer of the Bond or the failure of the Bond to continue to
satisfy the conditions required for the exemption of interest thereon from
regular federal income tax. No investigation has been made as to the current or
future owners or users of the facilities financed by the Bonds, the amount of
such persons' outstanding tax-exempt private activity bonds, or the facilities
themselves, and no assurance can be given that future events will not affect
the tax-exempt status of the Bonds. Investors should consult their tax advisors
for advice with respect to the effect of these provisions on their particular
tax situation.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME
TAX PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER THE INCOME TAX LAWS
OF ANY STATE OR LOCAL GOVERNMENT. INTEREST INCOME DERIVED FROM THE BONDS IS NOT
EXCLUDED FROM NET INCOME IN DETERMINING NEW YORK STATE OR NEW YORK CITY
FRANCHISE TAXES ON CORPORATIONS OR FINANCIAL INSTITUTIONS. THE LAWS OF SUCH
STATES AND LOCAL GOVERNMENTS VARY WITH RESPECT TO THE TAXATION OF SUCH
OBLIGATIONS.
From time to time, proposals have been introduced before Congress, the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals, including proposals for a "flat tax" or
"consumption tax", may be introduced in the future. The Sponsor 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.
B-20
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<PAGE>
The Revenue Reconciliation Act of 1993 increases maximum marginal tax
rates for individuals and corporations, extends the authority to issue certain
categories of tax-exempt bonds (qualified small issue bonds and qualified
mortgage bonds), expands a category of qualified tax-exempt bonds (bonds for
high-speed intercity rail facilities), limits the availability of capital gain
treatment for tax-exempt bonds purchased at a market discount, and makes a
variety of other changes. Prospective investors are urged to consult their own
tax advisors as to the effect of this Act on a possible investment in the
Trust.
In South Carolina v. Baker, the U.S. Supreme Court held that the
federal government may constitutionally require states to register bonds they
issue and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the federal government to
regulate and control bonds such as the Bonds in the Trust and to tax interest
on such bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Bonds in the Trust in
accordance with Section 103 of the Code.
The opinions of counsel to the issuing governmental authorities to the
effect that interest on the Bonds is exempt from regular federal income tax may
be limited to law existing at the time the Bonds were issued, and may not apply
to the extent that future changes in law, regulations or interpretations affect
such Bonds. Investors are advised to consult their own advisors for advice with
respect to the effect of any legislative changes.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units of the Trust is evidenced by registered
certificates executed by the Trustee and the Sponsor. 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
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<PAGE>
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 A, "The Trust--Expenses
and Charges" and "Rights of Unit Holders--Redemption" in Part B.
The Trustee will credit to the Interest Account for the Trust all
interest received by the Trust, including that part of the proceeds of any
disposition of Securities which represents accrued interest. Other receipts of
the Trust will be credited to the Principal Account for the Trust. The pro rata
share of the Interest Account of the Trust and the pro rata share of cash in
the Principal Account (other than amounts representing failed contracts as
previously discussed) represented by each Unit thereof will be computed by the
Trustee each month as of the Record Date. See "Summary of Essential Financial
Information" in Part A. Proceeds received from the disposition of any of the
Securities subsequent to a Record Date and prior to the next succeeding
Distribution Date will be held in the Principal Account for the Trust and will
not be distributed until the second succeeding Distribution Date. Because
interest on the Securities is not received by the Trust at a constant rate
throughout the year, any particular interest distribution may be more or less
than the amount credited to the Interest Account of the Trust as of the Record
Date. See "Summary of Essential Financial Information" in Part A. Persons who
purchase Units between a Record Date and a Distribution Date will receive their
first distribution on the second Distribution Date following their purchase of
Units under the applicable plan of distribution. No distribution need be made
from the Principal Account if the balance therein is less than an amount
sufficient to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to the first
Record Date and to the related Distribution Date is an asset of the respective
Unit holder and will be realized in subsequent distributions or upon the
earlier of the sale of such Units or the maturity, redemption or sale of
Securities in the Trust.
Purchasers of Units who desire to receive distributions on a monthly
basis may elect to do so at the time of purchase during the initial public
offering period. Those indicating no choice will be deemed to have chosen the
semi-annual distribution plan. Record dates for monthly distributions will be
the fifteenth day of the preceding month and record dates for semi-annual
distributions will be the fifteenth day of May and November.
Details of estimated interest distributions under the payment plans,
on a per Unit basis, appear in footnote 9 to the "Summary of Essential
Financial Information" in Part A.
The plan of distribution selected by a Unit holder will remain in
effect until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of the
prior owner. Each April, the Trustee will furnish each Unit holder a card to be
returned together with the Certificate by May 15 of such year if the Unit
holder desires to change his plan of distribution, and the change will become
effective on May 16 of such year for the ensuing twelve months. For a
discussion of redemption of Units, see "Rights of Unit Holders--
Redemption--Tender of Units" in Part B.
The Trustee will, as of the fifteenth day of each month, deduct from
the Interest Account and, to the extent funds are not sufficient therein, from
the Principal Account, amounts necessary to pay the expenses of the Trust as of
the first day of such month. See "The Trust--Expenses and Charges" in Part B.
The Trustee also may withdraw from said accounts such amounts, if any, as it
deems necessary to establish a reserve for any governmental charges payable out
of the Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any part of
such amounts to the appropriate account. In addition, the Trustee may withdraw
from the Interest Account and the Principal Account such amounts as may be
necessary to cover redemption of Units
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by the Trustee. See "Rights of Unit Holders--Redemption" in Part B. 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 order to eliminate fluctuations in monthly interest
distributions resulting from such variances during the first year of the Trust,
the Trustee is required by the Trust Agreement to advance such amounts as may
be necessary to provide monthly interest distributions of approximately equal
amounts. In addition, the Trustee has agreed to advance sufficient funds to the
Trust in order to reduce the amount of time before monthly distributions of
interest to Unit holders commence. The Trustee will be reimbursed, without
interest, for any such advances from funds available from the Interest Account
of the Trust. The Trustee's fee takes into account the costs attributable to
the outlay of capital needed to make such advances.
In order to acquire certain of the Securities subject to contract, it
may be necessary to pay on the settlement dates for delivery of such Securities
amounts covering accrued interest on such Securities which exceed the amounts
paid by Unit holders (which excess will be made available under a letter of
credit furnished by the Sponsor on the Date of Deposit). The Trustee has agreed
to pay for any amounts necessary to cover any such excess and will be
reimbursed therefor (without interest) when funds become available from
interest payments on the particular Securities with respect to which such
payments may have been made. Also, since interest on such Securities in the
portfolio of the Trust (see "The Portfolio" in Part A) does not begin accruing
as tax-exempt interest income to the benefit of Unit holders until such Bonds'
respective dates of delivery (accrued interest prior to delivery being treated
under the Code as a return of principal), the Trustee will, in order to cover
interest treated as a return of principal, adjust its fee downward in an amount
equal to the amount of interest that would have so accrued as tax-exempt
interest (if not treated as a return of principal) on such Securities between
the date of settlement for the Units and such dates of delivery.
In addition, because of the varying interest payment dates of the
Securities comprising the Trust portfolio, accrued interest at any point in
time, subsequent to the recovery of any advancements of interest made by the
Trustee, will be greater than the amount of interest actually received by the
Trust and distributed to Unit holders. Therefore, there will usually remain an
item of accrued interest that is added to the value of the Units. If a Unit
holder sells all or a portion of his Units he will be entitled to receive his
proportionate share of the accrued interest from the purchaser of his Units.
Similarly, if a Unit holder redeems all or a portion of his Units, the
Redemption Price per Unit which he is entitled to receive from the Trustee will
also include accrued interest on the Securities. Thus, the accrued interest
attributable to a Unit will not be entirely recovered until the Unit holder
either redeems or sells such Unit or until the Trust is terminated.
Expenses and Charges
Initial Expenses
All or a portion of the expenses incurred in creating and establishing
the Trust, including the cost of the initial preparation and execution of the
Trust Agreement, the initial fees and expenses of the Trustee, legal expenses
and other actual out-of-pocket expenses, will be paid by the Trust and
amortized over a five year period. All advertising
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and selling expenses, as well as any organizational expenses not paid by the
Trust, will be borne by the Sponsor at no cost to the Trust.
Fees
The Trustee's, Sponsor's and Evaluator's fees are set forth under the
"Summary of Essential Financial Information" in Part A. The Sponsor's fee,
which is earned for portfolio supervisory services, is based on the face amount
of Securities in the Trust at December 1 of each year. The Sponsor's fee, which
is not to exceed the maximum amount set forth under the "Summary of Essential
Financial Information" for the Trust, may exceed the actual costs of providing
portfolio supervisory services for the Trust, but at no time will the total
amount the Sponsor receives for portfolio supervisory services rendered to all
series of the Glickenhaus Special Situations Trust in any calendar year exceed
the aggregate cost to them of supplying such services in such year.
The Trustee will receive for its ordinary recurring services to the
Trust an annual fee in the amount set forth in the "Summary of Essential
Financial Information" for the Trust; provided, however, that such fees may be
adjusted as set forth under the "Summary of Essential Financial Information".
There is no minimum fee and, except as hereinafter set forth, no maximum fee.
For a discussion of certain benefits derived by the Trustee from the Trust's
funds, see "Rights of Unit Holders--Distribution of Interest and Principal" in
Part B. For a discussion of the services performed by the Trustee pursuant to
its obligations under the Trust Agreement, reference is made to the material
set forth under "Rights of Unit Holders" in Part B.
The Trustee's and Evaluator's fees are payable monthly on or before
each Distribution Date and the Sponsor's annual fee is payable annually on
December 1, each from the Interest Account to the extent funds are available
and then from the Principal Account. These fees may be increased without
approval of the Unit holders by amounts not exceeding proportionate increases
in consumer prices for services as measured by the United States Department of
Labor's Consumer Price Index entitled "All Services Less Rent"; except no such
increase in the Trustee's fee will be so made for the sole purpose of making up
any downward adjustment therein as described in "Summary of Essential Financial
Information". If the balances in the Principal and Interest Accounts are
insufficient to provide for amounts 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.
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 Sponsor (so
long as the Sponsor maintains a secondary market, the Sponsor 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 Sponsor,
contemplated). The above expenses, including the Trustee's fee, when paid by or
owing to the Trustee, are secured by a lien on the Trust. In addition, the
Trustee is empowered to sell 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, 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 and any related
custodial fee), deductions for payments of applicable taxes and for fees and
expenses of the Trust, purchase of Replacement Bonds, redemptions of Units, the
amount of any "when issued" interest treated as a return of capital and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (3) a
list of the Securities held and the number of Units outstanding on the last
business day of such calendar year; (4) the Redemption Price per Unit based
upon the last computation thereof made during such calendar year; and (5)
amounts actually distributed during such calendar year from the Interest
Account and from the Principal Account, separately stated, expressed both as
total dollar amounts and as dollar amounts representing the pro rata share of
each Unit outstanding.
The Trustee shall keep available for inspection by Unit holders at all
reasonable times during usual business hours, books of record and account of
its transactions as Trustee including records of the names and addresses of
Unit holders of the Trust, certificates issued or held, a current list of
Securities in the Trust and a copy of the Trust Agreement.
Redemption
Tender of Units
While it is anticipated that Units can be sold in the secondary
market, Units may also be tendered to the Trustee for redemption at its
corporate trust office at 101 Barclay Street, New York, New York 10286, upon
payment of any applicable tax. At the present time there are no specific taxes
related to the redemption of the Units. No redemption fee will be charged by
the Sponsor or the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be delivered to the Trustee
and must be properly endorsed and accompanied by a written instrument of
transfer. Thus, redemption of Units cannot be effected until certificates
representing such Units have been delivered to the person seeking redemption
(see "Rights of Unit Holders-- Certificates" in Part B). Unit holders must sign
exactly as their names appear on the face of the certificate with signature(s)
guaranteed by an officer of a national bank or trust company, a member firm of
either the New York, Midwest or Pacific Stock Exchange, or in such other manner
as may be acceptable to the Trustee. In certain instances the Trustee may
require additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or
certificates of corporate authority.
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Within three business days following such tender, the Unit holder will
be entitled to receive in cash an amount for each Unit tendered equal to the
Redemption Price per Unit computed as of the Evaluation Time set forth in the
"Summary of Essential Financial Information" as of the next subsequent
Evaluation Time. See "Redemption-- Computation of Redemption Price per Unit."
The "date of tender" is deemed to be the date on which Units are received by
the Trustee, except that as regards Units received after the Evaluation Time on
the New York Stock Exchange, the date of tender is the next day on which such
Exchange is open for trading or the next day on which there is a sufficient
degree of trading in Units of the Trust, and such Units will be deemed to have
been tendered to the Trustee on such day for redemption at the Redemption Price
computed on that day. For information relating to the purchase by the Sponsor
of Units tendered to the Trustee for redemption at prices in excess of the
Redemption Price, see "Redemption-- Purchase by the Sponsor of Units Tendered
for Redemption" in Part B.
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.
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.
Computation of Redemption Price per Unit
The Redemption Price per Unit is determined by the Trustee on the
basis of the bid prices of the Securities in the Trust, while the Public
Offering Price of Units during the initial offering period is determined on the
basis of the offering prices of the Securities, both as of the Evaluation Time
on the day any such determination is made. The bid prices of the Securities may
be expected to be less than the offering prices. This Redemption Price per Unit
is each Unit's pro rata share, determined by the Trustee, of: (1) the aggregate
value of the Securities in the Trust (determined by the Evaluator as set forth
below), (2) cash on hand in the Trust (other than cash covering contracts to
purchase Securities), and (3) accrued and unpaid interest on the Securities as
of the date of computation, less (a) amounts representing taxes or governmental
charges payable out of the Trust, (b) the accrued expenses of the Trust, and
(c) cash held for distribution to Unit holders of record as of a date prior to
the evaluation. The Evaluator may determine the value of the Securities in the
Trust (1) on the basis of current bid prices for the Securities, (2) if bid
prices are not available for any Securities, on the basis of current bid prices
for comparable bonds, (3) by appraisal, or (4) by any combination of the above.
The difference between the bid and offering prices of the Securities
may be expected to average 1 1/2% of face amount. In the case of actively
traded bonds, the difference may be as little as 1/2 of 1%, and in the case of
inactively traded bonds such difference usually will not exceed 3%. On the
business day prior to the date of this Prospectus, the aggregate bid side
evaluation was lower than the aggregate offering side evaluation by the amount
set forth in footnote 6 to the "Portfolio". For this reason, among others, the
price at which Units may be redeemed could be less than the price paid by the
Unit holder. On the Date of Deposit the aggregate current offering price of
such
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Securities per Unit exceeded the bid price of such Securities per Unit by the
amount set forth under "Summary of Essential Financial Information".
Purchase by the Sponsor of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the Sponsor of
any tender of Units for redemption. So long as the Sponsor is maintaining a bid
in the secondary market, the Sponsor, prior to the close of business on the
second succeeding business day, will purchase any Units tendered to the Trustee
for redemption at the price so bid by making payment therefor to the Unit
holder in an amount not less than the Redemption Price on the date of tender
not later than the day on which the Units would otherwise have been redeemed by
the Trustee (see "Public Offering-- Market for Units" in this Part B). Units
held by the Sponsor may be tendered to the Trustee for redemption as any other
Units, provided that the Sponsor 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 Sponsor will be the
Public Offering Price determined in the manner provided in this Prospectus (see
"Public Offering--Offering Price" in Part B). Any profit resulting from the
resale of such Units will belong to the Sponsor which likewise will bear any
loss resulting from a lower offering or redemption price subsequent to its
acquisition of such Units (see "Public Offering--Sponsor" and Underwriters"
Profits" in this Part B).
AUTOMATIC ACCUMULATION ACCOUNT
The Sponsor expects to enter into an arrangement (the "Plan") with an
open-end, non-diversified investment company (the "Accumulation Fund") which
permits Unit holders of the Trust to elect to have distributions from Units in
the Trust automatically reinvested in shares of the Accumulation Fund. Each
Unit holder may request from The Bank of New York (the "Plan Agent"), a copy of
the current prospectus relating to the Accumulation Fund (the "Fund
Prospectus") describing the Fund, including charges and expenses, and a form by
which such Unit holder may elect to become a participant ("Participant") in the
Plan. Read the Fund Prospectus carefully before you decide to participate.
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
Accumulation Fund at a net asset value as computed as of the close of trading
on the New York Stock Exchange on such date, plus the applicable sales change,
if any, as described in the Fund Prospectus. Unless otherwise indicated, new
Participants in the 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 Accumulation Fund purchased on his behalf. A Participant may at
any time prior to ten days preceding the next succeeding distribution date, by
so notifying the Plan Agent in writing, elect to terminate his participation in
the Plan and receive future distributions on his Units in cash. There will be
no charge or other penalty for such termination. The Sponsor, the Trustee and
the Accumulation Fund, each will have the right to terminate this Plan at any
time for any reason. The reinvestment of distributions from the Trust through
the Plan will not affect the income tax status of such distributions.
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ROLLOVER AND EXCHANGE OPTION
Unit holders may reinvest their terminating distributions into units
of a subsequent series of Glickenhaus Special Situations Trust (the "New
Series") provided one is offered or they may exchange their Units for units of
another series for which Glickenhaus & Co. acts as Sponsor (the "Exchange
Series"). Such purchaser may be entitled to a reduced sales load (as disclosed
in the prospectus for the New Series or Exchange Series) upon the purchase of
units of such New Series or Exchange Series. It is expected that the terms of
the New Series will be substantially the same as the terms of the Trust
described in this Prospectus and that a similar reinvestment program will be
offered with respect to all subsequent series of the Trust, thus giving Unit
holders opportunity to elect to "rollover" their terminating distributions into
a New Series. The availability of these options do not constitute a
solicitation of an offer to purchase Units of a New Series or Exchange Series
or any other security. A Unit holder's election to participate in either of
these options will be treated as an indication of interest only. At any time
prior to the purchase by the Unit holder of units of a New Series such Unit
holder may change his investment strategy and receive, in cash, his terminating
distribution. An election of either of these options will not prevent the Unit
holder from recognizing taxable gain or loss (except in the case of a loss, if
the New Series or Exchange Series is treated as substantially identical to the
Trust) as a result of the liquidation, even though no cash will be distributed
to pay any taxes. Unit holders should consult their own tax advisers in this
regard. The Sponsor intends to coordinate the date of deposit of future series
so that the terminating trust will terminate contemporaneously with the
creation of a New Series. The Sponsor reserves the right to modify, suspend or
terminate these reinvestment options at any time.
SPONSOR
Glickenhaus is the Sponsor of Glickenhaus Special Situations Trust,
Series 1 and all subsequent series.
Glickenhaus, a New York limited partnership, is engaged in the
underwriting and securities brokerage business, and in the investment advisory
business. It is a member of the New York Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. and is an associate member of the
American Stock Exchange. Glickenhaus acts as a sponsor for successive Series of
The Municipal Insured National Trusts and for the prior series of Empire State
Municipal Exempt Trust including those sold under the name of Municipal Exempt
Trust, New York Exempt Series 1, New York Series 2 and New York Series 3.
Glickenhaus, in addition to participating as a member of various selling groups
of other investment companies, executes orders on behalf of investment
companies for the purchase and sale of securities of such companies and sells
securities to such companies in its capacity as a broker or dealer in
securities.
Limitations on Liability
The Sponsor is liable for the performance of its obligations arising
from its responsibilities under the Trust Agreement, but will be under no
liability to the Unit holders for taking any action or refraining from any
action in good faith or for errors in judgment; nor will it be responsible in
any way for depreciation or loss incurred by reason of the sale of any Bonds,
except in cases of their willful misconduct, bad faith, gross negligence or
reckless disregard for its obligations and duties. See "The Trust--Portfolio"
and "Sponsor--Responsibility" in Part B.
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Responsibility
The Trustee shall sell, for the purpose of redeeming Units tendered by
any Unit holder and for the payment of expenses for which funds are not
available, such of the Bonds in a list furnished by the Sponsor as the Trustee
in its sole discretion may deem necessary.
It is the responsibility of the Sponsor to instruct the Trustee to
reject any offer made by an issuer of any of the Securities to issue new
obligations in exchange and substitution for any Securities pursuant to a
refunding or refinancing plan, except that the Sponsor may instruct the Trustee
to accept such an offer or to take any other action with respect thereto as the
Sponsor may deem proper if the issuer is in default with respect to such
Securities or in the judgment of the Sponsor the issuer will probably default
in respect to such Securities in the foreseeable future.
Any obligations so received in exchange or substitution will be held
by the Trustee subject to the terms and conditions of the Trust Agreement to
the same extent as Securities originally deposited thereunder. Within five days
after the deposit of obligations in exchange or substitution for underlying
Securities, the Trustee is required to give notice thereof to each Unit holder,
identifying the obligations eliminated and the Securities substituted therefor.
Except as stated in this and the preceding paragraph and in the discussion
under "Portfolio--General Considerations" in Part B regarding the substitution
of Replacement Bonds for Failed Bonds, the acquisition by the Trust of any
securities other than the Securities initially deposited is prohibited.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor within 30 days, the
Trustee is required to notify the Sponsor thereof. If the Sponsor fails to
instruct the Trustee to sell or to hold such Bond within 30 days after
notification by the Trustee to the Sponsor of such default, the Trustee may in
its discretion sell the defaulted Bond and not be liable for any depreciation
or loss thereby incurred.
See "The Trust--Insurance on the Bonds" in Part B.
The Sponsor 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 Sponsor the retention of such Bonds in
the Trust would be detrimental to the interest of the Unit holders. The
proceeds from any such sales will be credited to the Principal Account for
distribution to the Unit holders.
Resignation
If, at any time, the Sponsor shall resign or fail to perform any of
its duties thereunder or becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, then the Trustee may appoint a
successor sponsor or terminate the Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 1995, the total partners' capital of Glickenhaus was
$146,106,000 (audited).
The foregoing information with regard to the Sponsor relates to the
Sponsor only, and not to any series of the Glickenhaus Special Situations
Trust. Such information is included in this Prospectus only for the purpose of
informing
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investors as to the financial responsibility of the Sponsor and its ability to
carry out its contractual obligations shown herein. More comprehensive
financial information can be obtained upon request from the 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) 431-8001. The Bank of New York is subject to supervision and
examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law.
The Trustee must be a banking corporation organized under the laws of the
United States or any state which is authorized under such laws to exercise
corporate trust powers and must have at all times an aggregate capital, surplus
and undivided profits of not less than $5,000,000. The duties of the Trustee
are primarily ministerial in nature. The Trustee did not participate in the
selection of Securities for the Trust.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of the disposition of any monies,
Securities or certificates or in respect of any evaluation or for any action
taken in good faith reliance on prima facie properly executed documents except
in cases of its willful misconduct, bad faith, gross negligence or reckless
disregard for its obligations and duties. In addition, the Trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or
in respect of the Trust which the Trustee may be required to pay under current
or future law of the United States or any other taxing authority having
jurisdiction. See "The Trust-- Portfolio" in Part A.
Responsibility
For information relating to the responsibilities of the Trustee under
the Trust Agreement, reference is made to the material set forth under "Rights
of Unit Holders," "Sponsor--Responsibility" and "Sponsor--Resignation" in this
Part B.
Resignation
By executing an instrument in writing and filing the same with the
Sponsor, the Trustee and any successor may resign. In such an event the Sponsor
is obligated to appoint a successor trustee as soon as possible. If the Trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over
by public authorities, or if the Sponsor deems it to be in the best interest of
the Unit holders, the Sponsor may remove the Trustee and appoint a successor as
provided in the Trust Agreement. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor trustee. If, 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.
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EVALUATOR
Both during and after the initial offering period, the Evaluator shall
be Muller Data Corporation ("Muller Data"), a New York corporation with main
offices located at 395 Hudson Street, New York, New York 10014. Muller Data is
a wholly owned subsidiary of Thomson Publishing Corporation, a Delaware
corporation.
Limitations on Liability
The Trustee and the Sponsor 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
Sponsor or Unit holders for errors in judgement. But this provision shall not
protect the Evaluator in cases of its willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations and duties.
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 Sponsor. For
information relating to the responsibility of the Evaluator to evaluate the
Securities on the basis of their offering prices, see "Public
Offering--Offering Price" in Part B.
Resignation
The Evaluator may resign or may be removed by the Sponsor and the
Trustee, and the Sponsor and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by 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 Sponsor and the Trustee have the power to amend the Trust
Agreement without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision of the
Trust Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interest of the Unit holders; and the Sponsor and the Trustee may
amend the Trust Agreement with the consent of the holders of Certificates
evidencing 66 2/3% of the Units then outstanding, provided that no such
amendment will reduce the interest in the Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units required to
consent to any such amendment without the consent of all the Unit holders. In
no event shall the Trust Agreement be amended to increase the number of Units
issuable thereunder or to permit the deposit or acquisition of securities
either in addition to or in substitution for any of the Bonds initially
deposited in the Trust, except in accordance with the provisions of each Trust
Agreement. In
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the event of any amendment, the Trustee is obligated to notify promptly all
Unit holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the Securities. The Trustee
shall notify all Unit holders when the value of the Trust as shown by any
evaluation is less than $2,000,000 or less than 20% of the value of the Trust
as of the date hereof, whichever is lower, at which time the Trust may be
terminated (i) by the consent of 66 2/3% of the Units or (ii) by the Trustee;
provided, however, that upon affirmative written notice to the holders of their
opportunity to object to such termination and to the Sponsor 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 A; provided, however, that prior to such date, the Trustee
shall not dispose of any Bonds if the retention of such Bonds, until due, shall
be deemed to be in the best interest of the Unit holders. In the event of
termination, written notice thereof will be sent by the Trustee to all Unit
holders. Within a reasonable period after termination, the Trustee will sell
any remaining Securities, and, after paying all expenses and charges incurred
by the Trust, will distribute to each Unit holder, upon surrender for
cancellation of his certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters will be passed upon by Battle Fowler LLP, 75
East 55th Street, New York, New York 10022, as special counsel for the Sponsor,
and Kroll & Tract LLP, 520 Madison Avenue, New York, New York 10022, acting as
counsel for the Trustee.
AUDITORS
The statement of condition of the Trust included in this Prospectus
has been audited by BDO Seidman, LLP, independent certified public accountants,
as stated in their report appearing herein, and has been so included in
reliance upon such report given upon the authority of that firm as experts in
accounting and auditing.
DESCRIPTION OF BOND RATINGS
The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor"s from other sources it
considers reliable. Standard & Poor"s does not perform an audit in connection
with any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended, or withdrawn as a result of changes in,
or unavailability of, such information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default-capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation;
B-32
388740.3
<PAGE>
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA--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.
Plus (+) or Minus (-): to provide more detailed indications of credit
quality, the ratings from "AA" to "B" may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.
NR--Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
SP-1: Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest. SP-3:
Speculative capacity to pay principal and interest.
* Moody's Investors Service rating. A summary of the meaning of the
applicable rating symbols as published by Moody's follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
B-33
388740.3
<PAGE>
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.
Con. (. . .)--Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally. These
are bonds secured by: (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from "Aa" through "B" in its corporate rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the security ranks in the lower end of its generic rating
category.
**Fitch Investors Service Rating. A summary of the meaning of the
applicable rating symbols as published by Fitch follows:
AAA--These bonds are considered to be investment grade and of the
highest quality. The obligor has an extraordinary ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--These bonds are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue.
A--These bonds are considered to be investment grade and of good
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB--These bonds are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings.
A "+" or a "--" sign after a rating symbol indicates relative standing
in its rating.
B-34
388740.3
<PAGE>
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Summary of Essential Information
As of October 25, 1996
THE TRUST
Offering Price $990.39*
Accrued Interest $0
Est. Maturity Value $1,000
Average Pricing Life 21.73 years
Weighted Average Maturity 28.89 years
Number of Issues / Issuers 12 / 11
*Includes sales charge of 4.95% (based on sales of fewer than 250 units).
Distributions** Monthly Semi-Annual
------- -----------
Current Returns 5.16% 5.21%
Est. Long-Term Returns 5.19% 5.24%
Initial Payout Dates 12/1/96 12/1/96
Initial Payouts $2.13 $2.15
Regular Record Dates 15th Day 5/15, 11/15
Regular Payout Dates 1st Day 6/1, 12/1
Regular Payouts $4.26 $25.79
Annual Income $51.08 $51.58
Cusips 379293103 379293111
**Distribution data can vary with changes in the portfolio.
Volume discounts**
During the initial public offering period, the following volume discounts from
the public offering price are available:
Dollar Amount Estimated Estimated
of Sales Charge Current Long-Term
Aggregate Number Reduction Return Return
of Units Purchased Per Unit Semi-Annual Semi-Annual
- ------------------ -------- ----------- -----------
250 - 499 Units $2.50 5.22% 5.26%
500 - 999 units $7.50 5.25% 5.29%
1,000 - 1,999 Units $15.00 5.29% 5.34%
2,000 or more Units $20.00 5.32% 5.38%
- ------------------------------------------------------------------------------
Comparison of Tax-Free vs Taxable Yields
If your taxable income is approximately(1):
Joint Return (2)
$0 $40,101 $96,901 $117,951 $121,301 $263,751
$40,100 $96,900 $117,950 $121,300 $263,750 Over
Single Return
$0 $24,001 $58,151 $117,951 $121,301 $263,751
$24,000 $58,150 $117,950 $121,300 $263,750 Over
Then your maximum 1996 income tax bracket is (3):
15.00% 28.00% 31.00% 31.93% 37.08% 40.79%
and a 4.00% tax-free yield is equal to taxable yields of (4):
4.70% 5.55% 5.79% 5.87% 6.35% 6.75%
or a 5.00% tax-free yield is equal to taxable yields of:
5.88% 6.94% 7.24% 7.34% 7.94% 8.44%
or a 6.00% tax-free yield is equal to taxable yields of:
7.05% 8.33% 8.69% 8.81% 9.53% 10.13%
- -------------------------------------------------------------------------------
1. Income brackets have been rounded for illustration and rates may vary.
2. After exemptions and deductions other than state and local deductions.
3. Both tables use the highest Federal, state and local applicable rates.
4. Yields have been rounded off to facilitate illustration.
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FOR BROKER/DEALER USE ONLY
Duke &
Company, Inc.
Tax-Free Portfolios
National Insured
Series 1
AAA-Rated Municipal Securities*
October 28, 1996
5,000 Units
Estimated Current Return**
5.21%
Estimated Long Term Return***
5.24%
Taxable Equivalent Yield****
8.62%
The Pursuit of
Maximum Investment Income.
*Although the Trust is comprised of pre-insured bonds rated AAA by one or more
of the leading rating agencies, the Units are neither insured or rated.
**Estimated current return represents the net annual interest income for the
semi-annual payout option, after expenses, divided by the public offering price
on the date of deposit (had units then been available). The return varies with
changes in interest income, public offering price, frequency of payout and
amount invested.
***Estimated long term return represents an average of the yields to maturity
(or call) of the bonds in the trust portfolio, adjusted to reflect expenses and
sales charges. In contrast to the estimated current return, estimated long-term
return reflects the amortization of premium or accretion of discount, if any,
on the bonds in the trust. Unit value will fluctuate with changes in market
conditions.
**** Represents the current yield you would have to earn from a taxable
investment to equal the federal exempt yield of 5.21% from a municipal
security. Assumes the investor is in the maximum 39.60% federal tax bracket.
<PAGE>
The Pursuit of Maximum Investment Income.
Duke & Company Tax Free Portfolios have been created for ONE purpose - the
pursuit of maximum investment income. It's more than just income; it's tax-free
income1 so you can keep what you earn; it's insured income for additional
safety; it's assured income from AAA-rated bonds2; and it's selected by
professionals with experience in finding the best values in the $1 trillion
municipal market.
Advantages
AAA Rated Reliability Your income and principal are protected by insured,
AAA-rated municipal bonds.
Tax-Free Income The coupon income is yours to keep - a savings of up to 39.6%
in federal taxes.
Professional Selection Seasoned professionals search for the best values in the
$1 trillion municipal market.
Choice of Monthly or Semi-Annual Distributions You have the option of monthly,
semi-annual or reinvested distributions so that you can tailor the
distributions to your financial needs.
Portfolio Surveillance Professionals select the bonds for each portfolio and
monitor the bonds for as long as the Trusts are outstanding.
Assured Liquidity You can sell your units at any time back to Duke & Company
Inc., the Sponsor or the Trustee at the bid price - no odd-lot fees, no
haggling.
More complete information, including all charges and expenses, is available in
the Duke & Company Tax Free Portfolios prospectus. Please read it carefully
before investing or sending money.
Duke & Company Inc. Duke & Company Inc.
909 Third Avenue - 7th fl 45 Crossways Park Drive
New York, NY 10022 Woodbury, NY 11797
212-355-3535 516-364-3000
1-800-374-7100 1-800-785-3853
http://www.dukeandco.com
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1. The coupon income from the municipal bonds in the portfolios are exempt from
federal taxes, but may be subject to state and local taxes, depending on the
place of residence.
2. Insurance does not protect the market value of the units, which will rise
and fall with general market conditions and may be worth more or less than the
original purchase price at redemption. Although there are no guarantees that
the insurers can fulfill their obligations, their claims paying abilities are
rated AAA by one or more of the leading rating agencies.
- --------------------------------------------------------------------------------
Sponsor Underwriter Trustee
Glickenhaus & Co. Duke & Company Inc. The Bank of New York
6 East 43rd Street 909 Third Ave- 7th Floor 101 Barclay Street
New York, NY 10017 New York, NY 10022 New York, NY 10286
- --------------------------------------------------------------------------------
Portfolio on October 28, 1996 Maturity/
# Issue Coupon Yld-to-Mat
- -- ----- ------ ----------
1. IL Education Fac'l Auth Rev 6.250% 05/15/26
Midwestern Univ, Series B (Connie Lee) 5.801%
AAA Par Value: $500,000 Mkt Value: $518,695
Callable 05/15/06 @ 102 S.F. 05/15/17 @ 100
2. Clark County, Nevada Ltd GO 6.000% 07/01/26
Las Vegas Convention and Visitors Auth (FSA) 5.800%
Add'l Secured By Pledged Rev Series Sep. 1, 1996
AAA Par Value: $500,000 Mkt Value: $507,825
Callable 07/01/06 @ 101 S.F. 07/01/22 @ 100
3. Special Care Fac'l Fin Auth Rev 5.875% 11/15/26
Birmingham Baptist Med Ctr Series 1996 A (MBIA) 5.845%
AAA Par Value: $500,000 Mkt Value: $501,250
Callable 11/15/06 @ 102 S.F. 11/15/20 @ 100
4. Cook County, IL GO 5.875% 11/15/22
Capital Improvement, Seris 1996 (FGIC) 5.845%
AAA Par Value: $200,000 Mkt Value: $200,500
Callable 11/15/06 @ 101 S.F. 11/15/17 @ 100
5. NH Higher Ed and Hlth Fac'l Auth Rev 5.875% 01/01/20
Crotched Mtn Rehab Ctr, Series 1996 (MBIA) 5.845%
AAA Par Value: $500,000 Mkt Value: $501,250
Callable 01/01/07 @ 102 S.F. 01/01/14 @ 100
6. NYS Med Care Fac'l Fin Agcy Mtge Rev 5.750% 02/15/25
Montifiore Medical Ctr FHA, 1995 Series A (AMBAC) 5.840%
AAA Par Value: $500,000 Mkt Value: $493,750
Anticipated 02/15/07 @ 100 No Sinking Fund
7. Peru, IL Electric Sys Rev 5.750% 05/01/25
Series 1993 (FGIC) 5.900%
AAA Par Value: $500,000 Mkt Value: $489,700
Callable 05/01/03 @ 101 S.F. 05/01/14 @ 100
8. NY City Muni Wtr Fin Auth Rev 5.750% 06/15/26
Water and Sewer System, Fiscal 1996 Series B (MBIA) 5.835%
AAA Par Value: $500,000 Mkt Value: $494,000
Callable 06/15/06 @ 101 S.F. 05/15/21 @ 100
9. Grant Cnty, WA Public Util Dist #2 Rev 5.625% 01/01/31
Priest Rapids Hydro Elec Dev, Series 1996 A (MBIA) 5.855%
AAA Par Value: $200,000 Mkt Value: $193,218
Callable 01/01/06 @ 102 S.F. 01/01/27 @ 100
10. Grant Cnty, WA Public Util Dist #2 Rev 5.625% 01/01/31
Wanapum Hydro Elec, Series 1996 A (MBIA) 5.855%
AAA Par Value: $300,000 Mkt Value: $289,827
Callable 01/01/06 @ 102 S.F. 01/01/27 @ 100
11. PA Inter Gov't Coop Auth, Spec'l Tax Rev 5.625% 06/15/23
Philadelphia Funding Program, Series 1993 (MBIA) 5.848%
AAA Par Value: $475,000 Mkt Value: $460,750
Callable 06/15/03 @ 100 S.F. 06/15/16 @ 100
12. Wisconsin Ctr District, Rev 0.000% 12/15/27
Senior Dedicated Tax, Series 1996 A (MBIA) 5.727%
AAA Par Value: $325,000 Mkt Value: $56,062.50
Non-Callable No Sinking Fund
Total Par Value: $5,000,000
Total Market Value: $ 4,706,827.50
Aggregrate Principal By State
IL: 24.0% NV: 10.0% AL: 10.0%
NH: 10.0% WA: 10.0% PA: 9.50%
WI: 6.50% NY: 20.0%
For more complete information concerning the Trust's portfolio, see
"Portfolio" in Part A of the prospectus.
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