AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1997
REGISTRATION NO. 333-17301
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
Amendment No. 1
to
FORM S-6
For Registration Under the Securities Act
of 1933 of Securities of Unit Investment
Trusts Registered on Form N-8B-2
---------------------
A. EXACT NAME OF TRUST:
Empire State Municipal Exempt Trust, Guaranteed Series 133
B. NAME OF DEPOSITORS:
Glickenhaus & Co.
Lebenthal & Co., Inc.
C. COMPLETE ADDRESS OF DEPOSITORS' PRINCIPAL EXECUTIVE OFFICES:
Glickenhaus & Co. Lebenthal & Co., Inc.
6 East 43rd Street 120 Broadway
New York, New York 10017 New York, New York 10281
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
<TABLE>
<CAPTION>
COPY OF COMMENTS TO:
<S> <C> <C>
SETH M. GLICKENHAUS JAMES A. LEBENTHAL MICHAEL R. ROSELLA, Esq.
Glickenhaus & Co. Lebenthal & Co., Inc. Battle Fowler LLP
6 East 43rd Street 120 Broadway 75 East 55th Street
New York, New York 10017 New York, New York 10281 New York, New York 10022
(212) 856-6858
</TABLE>
E. TITLE AND AMOUNT OF SECURITIES BEING REGISTERED:
13,000* Units of Empire State Municipal Exempt Trust, Guaranteed Series
133 are being registered under the Securities Act of 1933 and the
Investment Company Act of 1940.
F. PROPOSED MAXIMUM AGGREGATE OFFERING PRICE TO THE PUBLIC OF THE SECURITIES
BEING REGISTERED: $13,000,000**
G. AMOUNT OF FILING FEE (computed at one-thirty-third of 1 percent of the
proposed maximum aggregate offering price to the public): $3,939.39***
H. APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration
Statement.
/x/ Check if it is proposed that this filing will become effective
immediately upon filing pursuant to Rule 487.
- -----------------
* Including 3,000 Units registered for the purpose of resale by the
Depositors.
** Estimated solely for purposes of calculating filing fee.
*** $100 of this amount was previously paid.
396037.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 133
CROSS-REFERENCE SHEET
Pursuant to Rule 404(e) of Regulation C
Under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction as
to the Prospectus in Form S-6)
<TABLE>
<CAPTION>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
I. ORGANIZATION AND GENERAL INFORMATION
<S> <C> <C>
1. (a) Name of trust.......................................... Front cover of Prospectus
(b) Title of securities issued............................. Front cover of Prospectus
2. Name and address of each depositor.......................... Sponsors
3. Name and address of trustee................................. Trustee
4. Name and address of principal underwriters.................. Sponsors, Underwriting Account, Back
Cover
5. State of organization of trust.............................. The Trust
6. Execution and termination of trust agreement................ The Trust, Amendment and Termination of
the Trust Agreement
7. Changes of name............................................. Not Applicable
8. Fiscal year................................................. Not Applicable
9. Litigation.................................................. None
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. (a) Registered or bearer securities........................ Rights of Unit Holders
(b) Cumulative or distributive securities.................. Rights of Unit Holders
(c) Redemption............................................. Rights of Unit Holders
(d) Conversion, transfer, etc.............................. Rights of Unit Holders
(e) Periodic payment plan.................................. Not Applicable
(f) Voting rights.......................................... Amendment and Termination of the Trust
Agreement
(g) Notice to certificateholders........................... Right of Unit Holders--Reports and
Records, Sponsors--Responsibility, Trustee--
Resignation, Amendment and Termination
of the Trust Agreement--Amendment
(h) Consents required...................................... Sponsors-Responsibility, Amendment and
Termination of the Trust Agreement
(i) Other provisions....................................... The Trust-Tax Status
11. Type of securities comprising units......................... Prospectus front cover, The Trust-Portfolio
12. Certain information regarding periodic payment
certificates................................................ Not Applicable
i
396037.1
<PAGE>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
13. (a) Load, fees, expenses, etc.............................. Prospectus front cover, Summary of
Essential Financial Information, The
Trust--Expenses and Charges, Public
Offering--Offering Price, Public Offering--
Market for Units, Public Offering--
Sponsors' and Underwriters' Profits
(b) Certain information regarding periodic
payment certificates................................... Not Applicable
(c) Certain percentages.................................... Public Offering--Offering Price
(d) Other loads, fees, expenses............................ Rights of Unit Holders--Certificates
(e) Certain profits receivable by depositors,
principal underwriters, trustee or
affiliated persons..................................... Public Offering--Offering Price, Public
Offering--Sponsors' and Underwriters'
Profits, Rights of Unit Holders--
Redemption--Purchase by the Sponsors of
Units Tendered for Redemption
(f) Ratio of annual charges to income...................... Not Applicable
14. Issuance of trust's securities.............................. The Trust, Rights of Unit Holders--
Certificates
15. Receipt and handling of payments from purchasers............ Public Offering--Offering Price, Public
Offering--Sponsors' and Underwriters'
Profits, Amendment and Termination of the
Trust Agreement
16. Acquisition and disposition of underlying
securities.................................................. The Trust-Portfolio, Sponsors--
Responsibility
17. Withdrawal or redemption.................................... Public Offering--Market for Units, Rights of
Unit Holders--Redemption
18. (a) Receipt, custody and disposition of income............. The Trust-Portfolio--General Considerations,
The Trust--Insurance on the Bonds, Public
Offering--Offering Price, Rights of Unit
Holders--Distribution of Interest and
Principal, Rights of Unit Holders--Reports
and Records, Amendment and Termination
of the Trust Agreement
(b) Reinvestment of distributions.......................... Automatic Accumulation Account
(c) Reserves or special funds.............................. The Trust--Expenses and Charges--Other
Charges, Rights of Unit Holders--
Distribution of Interest and Principal,
Amendment and Termination of the Trust
Agreement
(d) Schedule of distributions.............................. Not Applicable
19. Records, accounts and reports............................... Rights of Unit Holders--Reports and
Records; Rights of Unit Holders--
Distribution of Interest and Principal,
ii
396037.1
<PAGE>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
Amendment and Termination of the Trust
Agreement
20. Certain miscellaneous provisions of trust
agreement
(a) Amendment.............................................. Sponsors--Resignation, Trustee--Resignation,
Trustee--Limitations on Liability,
Amendment and Termination of the Trust
Agreement
(b) Termination............................................ Sponsors--Resignation, Trustee--Resignation,
Trustee--Limitations on Liability,
Amendment and Termination of the Trust
Agreement
(c) and (d) Trustee, removal and successor.................. Sponsors--Resignation, Trustee--Resignation,
Trustee--Limitations on Liability,
Amendment and Termination of the Trust
Agreement
(e) and (f) Depositor, removal and successor................ Sponsors--Resignation, Trustee--Resignation,
Trustee--Limitations on Liability,
Amendment and Termination of the Trust
Agreement
21. Loans to security holders................................... Not Applicable
22. Limitations on liability.................................... The Trust-Portfolio, Sponsors--Limitations
on Liability, Trustee--Limitations on
Liability
23. Bonding arrangements........................................ Additional Information - Item A
24. Other material provisions of trust agreement................ Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor................................... Sponsors
26. Fees received by depositor.................................. Not Applicable
27. Business of depositor....................................... Sponsors
28. Certain information as to officials and affiliated
persons of depositor........................................ Contents of Registration Statement
29. Voting securities of depositor.............................. Not Applicable
30. Persons controlling depositor............................... Not Applicable
31. Payments by depositor for certain services
rendered to trust........................................... Not Applicable
32. Payments by depositor for certain other services
rendered to trust........................................... Not Applicable
33. Remuneration of employees of depositor for
certain services rendered to trust.......................... Not Applicable
34. Remuneration of other person for certain services
rendered to trust........................................... Not Applicable
iii
396037.1
<PAGE>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
IV. Distribution and Redemption of Securities
35. Distribution of trust's securities by states................ Public Offering--Distribution of Units
36. Suspension of sales of trust's securities................... Not Applicable
37. Revocation of authority to distribute....................... Not Applicable
38. (a) Method of distribution................................. Public Offering--Distribution of Units,
Public Offering--Underwriting Account,
Public Offering--Sponsors' and
Underwriters' Profits
(b) Underwriting agreements................................ Public Offering--Distribution of Units,
Underwriting Account, Public Offering--
Sponsors' and Underwriters' Profits
(c) Selling agreements..................................... Public Offering--Distribution of Units,
Underwriting Account, Public Offering--
Sponsors' and Underwriters' Profits
39. (a) Organization of principal underwriters................. Sponsors
(b) N.A.S.D. membership of principal
underwriters........................................... Sponsors
40. Certain fees received by principal underwriters............. Not Applicable
41. (a) Business of principal underwriters..................... Sponsors
(b) Branch offices of principal underwriters............... Not Applicable
(c) Salesmen of principal underwriters..................... Not Applicable
42. Ownership of trust's securities by certain persons.......... Not Applicable
43. Certain brokerage commissions received by
principal underwriters...................................... Not Applicable
44. (a) Method of valuation.................................... Prospectus front cover, Public Offering--
Offering Price, Public Offering--Distribution
of Units
(b) Schedule as to offering price.......................... Not Applicable
(c) Variation in offering price to certain
persons................................................ Public Offering--Offering Price, Public
Offering--Distribution of Units
45. Suspension of redemption rights............................. Not Applicable
46. (a) Redemption valuation................................... Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit
(b) Schedule as to redemption price........................ Not Applicable
47. Maintenance of position in underlying securities............ Public Offering--Market for Units; Public
Offering--Sponsors' and Underwriters'
Profits, Rights of Unit Holders--
Redemption--Purchase by the Sponsors of
Units Tendered for Redemption, Rights of
Unit Holders--Redemption--Computation of
Redemption Price per Unit
iv
396037.1
<PAGE>
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of trustee...................... Trustee
49. Fees and expenses of trustee................................ The Trust--Expenses and Charges, Rights of
Unit Holders--Distribution of Interest and
Principal
50. Trustee's lien.............................................. The Trust--Expenses and Charges--Other
Charges, Rights of Unit Holders--
Distribution of Interest and Principal
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's securities.................. The Trust--Insurance on the Bonds
VII. Policy of Registrant
52. (a) Provisions of trust agreement with respect
to selection or elimination of underlying
securities............................................. Prospectus front cover, Sponsors--
Responsibility
(b) Transactions involving elimination of
underlying securities.................................. Not Applicable
(c) Policy regarding substitution or elimination
of underlying securities............................... Sponsors--Responsibility
(d) Fundamental policy not otherwise covered............... Not Applicable
53. Tax status of trust......................................... Prospectus front cover, The Trust--Tax
Status
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during last ten years.................... Not Applicable
55. Hypothetical account for issuers of periodic
payment plans............................................... Not Applicable
56. Certain information regarding periodic payment
certificates................................................ Not Applicable
57. Certain information regarding periodic payment
plans....................................................... Not Applicable
58. Certain other information regarding periodic
payment plans............................................... Not Applicable
59. Financial statements (Instruction 1(c) to Form
S-6) ....................................................... Statement of Condition
</TABLE>
v
396037.1
<PAGE>
10,000 UNITS
DATED: JANUARY 30, 1997
<TABLE>
<S> <C>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 133
No person is authorized to give any information or Parts A, B and C of this Prospectus do not contain all
of to make any representations not contained in Parts the information set forth in the registration statement and
A, B and C 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
having been authorized by the Trust, the Trustee, Securities Act of 1933, and the Investment Company Act of
the Evaluator, or the Sponsors. The Trust is 1940, and to which reference is made.
registered as a unit investment trust under the
Investment Company Act of 1940. Such This Prospectus does not constitute an offer to sell, or a
registration does not imply that the Trust or any of solicitation of an offer to buy, securities in any state to any
its Units have been guaranteed, sponsored, person to whom it is not lawful to make such an offer in
recommended or approved by the United States or such state.
any state or any agency or officer thereof.
PROSPECTUS PART A.
Table of Contents This Prospectus consists of three parts. This Part A may not
Part A be distributed unless accompanied by Parts B and C. Please
Summary of Essential Information A-2 read and retain each of the parts of this Prospectus for future
Report of Independent Auditors A-7 reference.
Statement of Condition A-8
Portfolio A-9 The Empire State Municipal Exempt Trust, Guaranteed Series
Underwriting Account A-11 133 (the "Trust"), is one of a series of similar but separate unit
Part B investment trusts formed for the purpose of obtaining tax-
The Trust B-1 exempt interest income through an investment in a fixed
Public Offering B-7 insured portfolio consisting primarily of various long-term
Estimated Current Return and municipal bonds with average maturities of over 10 years. The
Estimated Long-Term Return Sponsors of the Trust are Glickenhaus & Co. and Lebenthal &
to Unit Holders B-11 Co., Inc. Units of the Trust will be offered to residents of
Insurance on Bonds B-11 New York, Connecticut, Pennsylvania and Florida. On the
Tax Status B-14 Date of Deposit, all of the Units and the Bonds while in the
Rights of Unit Holders B-18 Trust will be rated AAA by Standard & Poor's Ratings
Automatic Accumulation Account B-24 Services, A Division of The McGraw-Hill Companies
Sponsors B-25 ("Standard & Poor's") and Moody's Investors Service, Inc.
Trustee B-27 ("Moody's") will assign a rating of "Aaa" to all of the Bonds
Evaluator B-27 in the Trust, as insured. The value of the Units of the Trust
Amendment and Termination of will fluctuate with the value of the underlying Bonds.
the Trust Agreement B-28 Minimum purchase: 1 Unit.
Legal Opinions B-28
Auditors B-28
Description of Bond Ratings B-28
Part C
Special Factors Affecting New York C-1
Puerto Rico Bonds C-7
</TABLE>
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.
452088.1
<PAGE>
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JANUARY 29, 1997 (1):
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO. TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
DATE OF DEPOSIT: JANUARY 30, 1997
<TABLE>
<S> <C>
Aggregate Principal Amount of Bonds in Trust: $ 10,000,000.00(2)
Number of Units: 10,000
Fractional Undivided Interest in Trust Per Unit: 1/10,000
Total Value of Securities in Portfolio (Based on Offering Side Valuations of Securities): $ 9,489,086.00
Sponsors' Initial Repurchase Price Per Unit (Total Value of Securities divided by 10,000 Units): $ 948.91(3)
Plus Sales Charge of 4.9% (on sales of fewer than 250 Units) of Public Offering Price (4): 48.89
---------------
Public Offering Price Per Unit: $ 997.80(5)
===============
Redemption Price Per Unit: $ 941.89(6)
Excess of Public Offering Price Over Redemption Price Per Unit: $ 55.91
Excess of Public Offering Price Over Sponsors' Initial Repurchase Price Per Unit: $ 48.89
Weighted Average Maturity of Bonds in the Trust: 27.239 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.
Annual Insurance Premium (7): $5,830.00
Evaluator's Fee: $.55 per Bond for each valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.39 under the monthly and $.99
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: $72,352.00
Mandatory Termination Date: December 31, 2046
First Settlement Date: February 4, 1997
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which Trust
Agreement May be Terminated: $2,000,000 or 20% of the principal amount of the Bonds deposited in
Trust, whichever is lower.
Monthly Semi-Annual
Estimated Annual Interest Income (includes cash income accrued only): $54.51 $54.51
P Less Annual Premium on Portfolio Insurance: .58 .58
E Less Organizational Expenses (8): .45 .45
R Less Estimated Annual Expenses (9): 2.13 1.63
------ -------
Estimated Net Annual Interest Income: $ 51.35 $51.85
======= ======
U Estimated Interest Distribution (10): $ 4.27 $25.92
N Estimated Current Return Based on Public Offering Price (includes cash
I income accrual only) (11): 5.15% 5.20%
T Estimated Long-Term Return (12): 5.20% 5.25%
Estimated Daily Rate of Net Interest Accrual: $.14263 $.14402
Record Dates: 15th Day of Month 15th Day of
May and November
Payment Dates: 1st Day of Month 1st Day of
June and December
</TABLE>
(continued on following page)
A-2
452088.1
<PAGE>
Notes to Summary of Essential Information
(1) The business day prior to the date of this Prospectus. The date of this
Prospectus is the date on which the Trust Agreement was signed and the deposit
with the Trustee was made. (2) If a Replacement Bond is not acquired when a
contract for the purchase of Bonds fails, the aggregate principal amount of the
Bonds may be reduced.
See "The Trust--General Considerations" in Part B.
(3) Based, during the initial offering period, solely upon the offering prices
of the Securities and thereafter on the bid prices of such Securities. See "The
Trust--Market for Units" in this Part A.
(4) After the initial offering period,
Units may be available for purchase from the Sponsors at a price based upon the
aggregate bid price of the Bonds in the Trust (as determined by the Evaluator)
plus a sales charge determined in accordance with the schedule set forth in
"Public Offering--Offering Price" in Part B of this Prospectus, which is based
upon the maturities of each Bond in the Trust.
(5) No accrued interest will be
added to the Public Offering Price in connection with purchases of Units
contracted for on January 30, 1997. With respect to purchases contracted for
after such date, accrued interest from February 4, 1997 to, but not including,
the date of settlement (normally three business days after order) will be added
to the Public Offering Price.
(6) Based solely upon the bid prices of the
Securities. Upon tender for redemption, the price to be paid will include
accrued interest as described in "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit" in Part B.
(7)Based upon the aggregate principal amount of the Bonds in the Trust. If the
Trustee had exercised its right to obtain Permanent Insurance on all of the
Bonds in the Trust as of the Date of Deposit, the total cost of the Permanent
Insurance premiums for such insurance would have been $67,398.
(8) Although historically the sponsors of unit investment trusts ("UITs") have
paid all the costs of establishing such UITs, this Trust (and therefore the
Unit holders) will bear all or a portion of its organizational costs. Such
organizational costs include: the cost of preparing and printing the
registration statement, the trust indenture and other closing documents;
registering Units with the Securities and Exchange Commission and the states;
and the initial audit of the Trust. Total organizational expenses will be
amortized over a five year period. See "Rights of Unit Holders--Expenses and
Charges--Initial Expenses" in Part B.
(9) Excluding insurance costs.
(10) The first monthly interest distribution of
$1.56 per Unit will be made on March 1, 1997 (the "First Distribution Date") to
all monthly certificateholders of record on February 15, 1997 (the "First Record
Date"). The regular monthly payment will be $4.27 on April 1, 1997 and
thereafter. The first semi-annual interest distribution of $14.54 per Unit will
be made on June 1, 1997 to all semi-annual certificateholders of record on May
15, 1997. The regular semi-annual payment will be $25.92 on December 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 February 4, 1997. This accrued interest will be paid to the Sponsors
as the holders of record of all Units on such date. Consequently, when the
Sponsors sell Units, the amount of accrued interest to be added to the Public
Offering Price of the Units purchased by an investor will include only accrued
interest from February 4, 1997 to but not including the date of settlement of
the investor's purchase (normally three business days after the purchase
contract), less any distributions from the Interest Account. Since a person who
contracts to purchase Units on January 30, 1997 will settle his purchase on
February 4, 1997, no accrued interest will be added to the Public Offering Price
of Units settled on that date. The Trustee will recover its advancements
(without interest or other cost to the Trust) from interest received on the
Securities deposited in the Trust. See "Rights of Unit Holders--Redemption--
Computation at Redemption Price per Unit" in Part B.
(11)Calculated after payment of insurance premiums payable by the Trust. The
Estimated Current Return on such date on an identical portfolio without such
insurance would have been 5.20% based on the semi-annual payment plan and 5.25%
based on the monthly payment plan. See "Tax Status" and "Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part B.
(12)Calculated after payment of insurance premiums payable by the Trust. The
Estimated Long-Term Return on such date on an identical portfolio without such
insurance would have been 5.26% based on the semi-annual payment plan and 5.31%
based on the monthly payment plan. See "Estimated Current Return and Estimated
Long-Term Return to Unit Holders" in Part B.
A-3
452088.1
<PAGE>
The Trust. Certain of the Bonds in the Trust may be purchased at prices which
result in the portfolio as a whole being purchased at a discount due to original
issue discount, market discount or the inclusion of zero coupon bonds. Bonds
selling at market discount tend to increase in market value as they approach
maturity when the principal amount is payable, thus increasing the potential for
gain (all or a portion of which may be taxable as ordinary income). Any income
other than any earned original issue discount will be taxable and will not be
realized until maturity, redemption or sale of the underlying Bonds or Units of
the Trust. In the case of Bonds acquired at a market discount, gain will be
treated as ordinary income to the extent of accrued market discount. At the time
of the original issuance of the Bonds held by the Trust, opinions relating to
the validity of the Bonds and the exemption of interest thereon from Federal
income tax and New York State and City personal income tax were (or with respect
to "when-issued" Bonds will be) rendered by bond counsel to the issuing
governmental authority. The continued tax-exempt status will depend upon the
issuer's ability to comply with the provisions of the Internal Revenue Code of
1986, as amended. See "Tax Status" in Part B. On the Date of Deposit, the
Sponsors, acting for the Underwriting Account (see "Underwriting Account" in
this Part A), deposited with the Trustee delivery statements relating to
contracts for the purchase of $10,000,000 aggregate principal amount for the
interest-bearing obligations, including funds (represented by cash, cash
equivalents and/or an irrevocable letter of credit issued by a major financial
institution) for the purchase of certain such obligations (the "Bonds" or the
"Securities"). The Trustee thereafter delivered to the Sponsors a registered
certificate of 10,000 Units, representing the entire ownership of the Trust,
which Units are being offered hereby.
The Portfolio. The portfolio of the Trust contains contracts to purchase seven
issues of Bonds issued by entities located in New York or certain United States
territories or possessions, including Puerto Rico, and their public authorities.
See "Special Factors Affecting New York" and "Puerto Rico Bonds" in Part C for a
discussion of risk factors. Except as described below, all such contracts are
expected to be settled by February 4, 1997. The following information is being
supplied to inform Unit holders of circumstances affecting the Trust. 10.00% 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. 90.00% 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: Electric Power-Investor Owned
Utility, 1 (20.00%); Health Care, 1 (20.00%); Higher Education, 3 (37.00%); and
Water & Sewer, 1 (13.00%). The Trust is deemed to be concentrated in the Higher
Education category.* Prior to their deposit in the Trust, five of the issues
(88.00%) were rated AAA by Standard and Poor's and two of the issues (12.00%)
were rated Baa1 by Moody's. Bonds rated Baa have adequate capacity to pay
interest and repay principal, however, such Bonds may have certain speculative
characteristics as well. Furthermore, Bonds rated Baa are more sensitive to
adverse economic changes or individual corporate developments. See "Description
of Bond Ratings" in Part B. 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. Moreover, the insurance on the Bonds in the
portfolio obtained by the Trust does not cover such Bonds until they are
delivered to the Trust. See "The Trust--General Considerations" in Part B.
100.00% of the aggregate principal amount of
- --------
* A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or
more of the aggregate face amount of the portfolio. See "The Trust--General
Considerations" in Part B of this Prospectus.
A-4
452088.1
<PAGE>
the Bonds in the Trust are original issue discount bonds. Of these original
issue discount bonds, 80.00% have mandatory sinking fund installment provisions
at redemption prices equal to the compound accreted value on the date of
redemption. Of these original issue discount bonds, none are zero coupon bonds.
(See "Original Issue Discount and Zero Coupon Bonds" in Part B). On the Date of
Deposit, based on the offering side valuation, none of the aggregate principal
amount of the Bonds were at par, 100.00% of the aggregate principal amount of
the Bonds were at a discount from par and none of the aggregate principal amount
of the Bonds were at a premium.
An investment in Units of the Trust should be made with an understanding of the
risks entailed in investments in fixed-rate bonds, including the risk that the
value of such bonds (and, therefore, of the Units) will decline with increases
in interest rates or a decrease in the federal or New York State income tax
rate. Inflation and recession, as well as measures implemented to address these
and other economic problems, contribute to fluctuations in interest rates and
the values of fixed-rate bonds generally. Additionally, changes in the tax
treatment of bonds may have an adverse impact on the value of the Units. The
Sponsors cannot predict future economic policies or their consequences, nor can
they predict the course or extent of such fluctuations in the future. Some of
the Bonds in the Trust may also have been previously insured by insurance
obtained by the issuers of such Bonds or by persons other than the Trust
("Pre-insured Bonds"). Five of the issues (88.00%) initially deposited in the
Trust were Pre-insured Bonds. All of the Bonds in the Trust are covered by
policies of insurance obtained from the MBIA Insurance Corporation (the
"Insurer") guaranteeing payment of principal and interest when due. As a result
of such issuance, the Bonds in the Trust have received a rating of "Aaa" by
Moody's and both the Bonds in the Trust and the Units of the Trust have received
a rating of "AAA" by Standard & Poor's. For the meanings of these ratings see
"Description of Bond Ratings" in Part B.
Risk Factors. Insurance does not protect against the risk of market fluctuations
on the underlying bonds in the Trust's portfolio and of the units of the Trust.
No assurance can be given that the Trust's objectives will be achieved as these
objectives are subject to the continuing ability of the respective issuers of
the bonds to meet their obligations or of the insurer to meet its obligations
under the insurance. In addition, an investment in Units of the Trust should be
made with an understanding of the risks entailed in investments in fixed-rate
bonds, including the risk that the value of such bonds (and, therefore, of the
Units) will decline with increases in interest rates or a decrease in the
federal or New York State income tax rate. Additionally, changes in the tax
treatment of bonds may have an adverse impact on the value of the Units.
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 ratings by either Standard & Poor's or
Moody's. In the event a Bond's rating is downgraded to below investment grade
(i.e., "high yield" or "junk bond" status), such a Bond, as compared to an
investment grade bond, is subject to greater risk of downward price volatility
in periods of economic uncertainty. If a Bond in the Trust is downgraded to high
yield bond status, a decrease in the net asset value of the Trust may result. If
such a decrease in net asset value occurs and Units of the Trust are tendered
for redemption, the Trust may be forced to liquidate some of the Bonds at a
loss. If such redemptions are substantial enough, this could trigger a complete
and unexpected liquidation of the Trust before maturity, resulting in
unanticipated losses for investors. There is also risk involved with the
purchase of bonds on a "when issued" or delayed settlement basis. See "The
Trust--General Considerations" in Part B. The financial condition of the State
of New York is affected by various national, economic, social and environmental
policies and conditions. Such matters may constrain the revenue-generating
capacity of the State and its local governments and, therefore, the ability of
the issuers of the Bonds to satisfy their obligations. The economy of the State
continues to be influenced by the financial health of the City of New York,
which faces greater competition as other major cities develop financial and
business capabilities. The State has for many years had a very high state and
local tax burden relative to other states. The burden of State and local
taxation, in combination with the many other causes of regional economic
dislocation, has contributed to the decisions of some
A-5
452088.1
<PAGE>
businesses and individuals to relocate outside, or not locate within, the State.
For further information concerning New York risk factors see "Special Factors
Affecting New York" in Part C.
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 $1.56 for Units of
the Trust and will be made on March 1, 1997, to monthly Unit holders of record
on February 15, 1997, and $4.27 thereafter. The first semi-annual distribution
will be $14.54 for Units of the Trust and will be made on June 1, 1997, to
semi-annual Unit holders of record on May 15, 1997, and $25.92 thereafter. See
"Rights of Unit Holders--Distribution of Interest and Principal" in Part B of
this Prospectus.
Each Unit of the Trust at the Date of Deposit represents 1/10,000 fractional
undivided interest in the $10,000,000 face amount of underlying Bonds and net
income of the Trust in the ratio of 1 Unit for each $1,000 principal amount of
underlying Bonds (including contracts and funds for the purchase thereof) in the
Trust.
Public Offering Price. The Public Offering Price of the Units of the Trust
during the initial offering period is equal to the aggregate offering price of
the Securities in the respective Trust's portfolio divided by the number of
Units outstanding, plus a sales charge equal to 4.9% of the Public Offering
Price of the Trust on sales of fewer than 250 Units. In addition, for Units
ordered after the date hereof, accrued interest will be payable from the First
Settlement Date for Units of the Trust (three business days from the date
hereof) to the expected date of settlement (three business days after order).
For additional information regarding the Public Offering Price, the descriptions
of interest and principal distributions, repurchase and redemption of Units and
other essential information regarding the Trust, see the "Summary of Essential
Information" in this Part A. During the initial public offering period, sales of
at least 250 Units will be entitled to a volume discount from the Public
Offering Price. See "Public Offering--Offering Price" in Part B. If the Units of
the Trust had been available for sale on January 29, 1997, the Public Offering
Price per Unit would have been $997.80.
Taxes. In counsel's opinion, under existing law, interest income to the Trust,
and, with certain exceptions, to Unit Holders is exempt from all regular
federal, New York State and New York City income taxes, but may be subject to
state and local taxes in other jurisdictions. Capital gains, if any, are subject
to tax. Interest on the Bonds will not be subject to the federal alternative
minimum tax. See "The Trust--Tax Status" in Part B of this Prospectus. Investors
should consult their personal tax advisor to determine the federal, state and
local income tax consequences of purchasing, owning and selling Units.
The Insurer. The Insurer is the principal operating subsidiary of MBIA Inc., a
New York Stock Exchange listed company. MBIA Inc. is not obligated to pay the
debts of or claims against the Insurer. The Insurer is a limited liability
corporation rather than a several liability association. The Insurer is
domiciled in the State of New York and licensed to do business in all 50 states,
the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of
the Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. The Insurer has two European branches, one in the Republic of
France and the other in the Kingdom of Spain.
As of September 30, 1996, the Insurer had admitted assets of $4.3 billion
(unaudited), total liabilities of $2.9 billion (unaudited), and total capital
and surplus of $1.4 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1995, the Insurer 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) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of the Insurer's year end financial statements prepared in
accordance with statutory accounting practices are available from the Insurer.
The address of the Insurer is 113 King Street, Armonk, New York 10504.
A-6
452088.1
<PAGE>
No representation is made herein as to the accuracy of such information or as to
the absence of material adverse changes in such information subsequent to the
date thereof. The Sponsors are not aware that the information herein is
inaccurate or incomplete as of the date hereof.
Sponsors. The total partners' capital of Glickenhaus at September 30, 1996 was
$144,057,869 (audited); and the total stockholders' equity of Lebenthal at
September 30, 1996 was $5,242,035 (unaudited) and at March 31, 1996 was
$4,518,542 (audited).
The foregoing information with regard to the Sponsors relates to the Sponsors
only, and not to any series of Empire State Municipal Exempt Trust. Such
information is included in this Prospectus only for the purpose of informing
investors as to the financial responsibility of the Sponsors and their ability
to carry out their contractual obligations shown herein. More comprehensive
financial information can be obtained upon request from any Sponsor.
REPORT OF INDEPENDENT AUDITORS
The Sponsors, Trustee, and Unit Holders of Empire State Municipal Exempt
Trust, Guaranteed Series 133
We have audited the Statement of Condition of Empire State Municipal Exempt
Trust, Guaranteed Series 133, including the Portfolio as of January 30, 1997.
This financial statement is the responsibility of the Sponsors. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial 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
Sponsors, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion. An
irrevocable letter of credit deposited on January 30, 1997 in the amount
required to purchase securities, as described in the Statement of Condition, was
confirmed to us by the Trustee.
In our opinion, the Statement of Condition referred to above presents fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 133 at January 30, 1997 in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
January 30, 1997
A-7
452088.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 133
STATEMENT OF CONDITION AS OF DATE OF DEPOSIT
January 30, 1997
TRUST PROPERTY
<TABLE>
<S> <C>
Investment in Securities:
Contracts to purchase underlying Securities (1)(2)........................................... $ 9,489,086.00
Accrued interest receivable (2)................................................................... 167,336.81
Organizational costs (3).......................................................................... 22,500.00
----------------
Total................................................................................. $ 9,678,922.81
================
LIABILITIES AND INTEREST OF UNIT HOLDERS
Liabilities:
Accrued interest receivable (2).............................................................. $ 167,336.81
Accrued liability (3)........................................................................ 22,500.00
---------------
189,836.81
Interest of Unit holders:
Units of fractional undivided interest outstanding (10,000):
Cost to investors (4)........................................................................ 9,977,986.00
Less--gross underwriting commission (5)....................................................... 488,900.00
---------------
Net interest of Unit holders...................................................................... 9,489,086.00
---------------
Total................................................................................. $ 9,678,922.81
===============
</TABLE>
- ----------------------
(1) Aggregate cost to the Trust of the Securities listed under
"Portfolio" is based on offering side valuation determined by the Evaluator on
the basis set forth under "Public Offering--Offering Price" in Part B. The
aggregate bid side evaluation of the Securities in the portfolio, as determined
by the Evaluator, as of the Date of Deposit was $9,418,937.00. An irrevocable
letter of credit issued by Bankers Trust, in an aggregate amount equal to or in
excess of $9,657,339.62, has been deposited with the Trustee. The amount of such
letter of credit includes: $9,489,086.00, the amount required to purchase the
tax-exempt securities listed in the related portfolio, plus $168,253.62 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 February 4, 1997 (the "First
Settlement Date") plus any cash received by the Trustee with respect to interest
on the Securities prior to such date, and the same will be distributed to the
Sponsors on the First Settlement Date. Consequently, the amount of interest
accrued on a Unit to be added to the public offering price thereof will include
only such accrued interest from the First Settlement Date to the date of
settlement, less all withdrawals and deductions from the Interest Account
subsequent to the First Settlement Date made with respect to the Unit.
(3) Organizational costs incurred by the Trust have been deferred and
will be amortized over a five year period. The Trust will reimburse the Sponsors
for actual organizational costs incurred.
(4) Aggregate public offering price (exclusive of interest) is computed
on 10,000 Units on the basis set forth above under "Public Offering-- Offering
Price" in Part B.
(5) A sales charge of 4.9% computed on 10,000 Units.
See "Public Offering--Offering Price" in Part B for volume discounts on sales
of 250 Units or more.
A-8
452088.1
<PAGE>
<TABLE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 133
Portfolio as of Date of Deposit, January 30, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Redemption Features
Port- Coupon Ant.--Anticipated Yield Cost of
folio Rating Principal Represented by Contracts to Rate and S.F.--Sinking Fund to Securities
No. (1)(2) Amount (3) Purchase Securities (4) Maturity Opt.--Optional(5) Maturity toTrust(6)(7)
- ------- ----------- ---------- ---------------------------- ------------ ------------------- -------- -------------
1 AAA/Aaa $1,500,000 Dormitory Authority of the S5.700% 07/01/17 @ 100 S.F. 5.780% $1,483,035.00
of New York, St. John's 07/01/2026 07/01/06 @ 102 Opt.
University Insured Revenue Bonds,
Series 1996 (MBIA Insured)
2 AAA/Aaa 2,000,000 Dormitory Authority of the S5.500 07/01/20 @ 100 S.F. 5.760 1,928,640.00
of New York City University 07/01/2024 07/01/06 @ 102 Opt.
System Consolidated Third
General Resolution Revenue Bonds
1996 Series 1 (MBIA Insured)
3 AAA/Aaa 2,000,000 New York State Medical Care 5.500 02/15/10 @ 100 S.F. 5.780 1,923,240.00
Facilities Finance Agency 08/15/2024 02/15/04 @ 102 Opt.
Hospital, Insured Mortgage
Revenue Bonds, 1994 Series A
Refunding (MBIA Insured)
4 AAA/Aaa 2,000,000 New York State Energy Resear 5.250 No Sinking Fund 5.780 1,864,540.00
and Development Authority, 08/15/2020 10/01/03 @ 102 Opt.
Facilities Refunding Revenue
Bonds, Series 1993B (Consolidated
Edison Company of New York,
Inc. Project)(Non-AMT)(MBIA
Insured)
5 AAA/Aaa 1,300,000 Town of Clifton Park Water 5.000 10/01/19 @ 100 S.F. 5.780 1,156,831.00
Authority, (New York), Water 10/01/2026 10/01/03 @ 102 Opt.
System Revenue Bonds, Service
1993 (FGIC Insured)
6 Baa1*/Aaa 1,000,000 The City of New York General 5.875 08/01/17 @ 100 S.F. 6.250 951,040.00
Obligation Bonds, Fiscal 1997 08/01/2024 08/01/06 @ 101.5 Opt.
Series F (MBIA Insured)
7 Baa1*/Aaa 200,000 Dormitory Authority of the S5.400 05/15/14 @ 100 S.F. 6.100 181,760.00
of New York State University 05/15/2023 05/15/04 @ 102 Opt.
Educational Facilities, Revenue
Bonds, Series 1993 C (MBIA
Insured)
$10,000,000
$9,489,086.00
</TABLE>
A-9
452088.1
<PAGE>
Notes to Portfolio
The symbol "NR" denotes a non-rated issue of Bonds.
(1) All ratings except those identified by an asterisk (*) are by Standard &
Poor's. A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers or lessees. The bond rating is not a
recommendation to purchase, sell or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular investor. A brief
description of the rating symbols and their meanings is set forth under
"Description of Bond Ratings" in Part B.
(2) Ratings in the right hand column are after deposit of these issues in
the Trust and their insurance by MBIA. Moody's has assigned its "Aaa" investment
rating to all of the Bonds while in the Trust, as insured by MBIA Insurance
Corporation.
(3) All Bonds are represented by contracts to purchase.
(4) All contracts to purchase the Bonds were entered into from January 23,
1997 to January 28, 1997. All contracts are expected to be settled prior to or
on the First Settlement Date of the Trust which is expected to be February 4,
1997.
(5) Unless otherwise indicated, there is shown under this heading the year
in which each issue of bonds initially is redeemable and the redemption price
for that year. Each such issue continues to be redeemable at declining prices
thereafter, but not below par. "S.F." indicates a sinking fund has been or will
be established with respect to an issue of Bonds. In addition, certain Bonds in
the Trust may be redeemed in whole or in part other than by operation of the
stated optional call or sinking fund provisions under certain unusual or
extraordinary circumstances specified in the instruments setting forth the terms
and provisions of such Bonds. A sinking fund is a reserve fund accumulated over
a period of time for retirement of debt. "Ant." indicates the existence of
anticipated redemptions at a price of 100%. Under certain circumstances, these
anticipated redemptions can be altered. A callable bond is one which is subject
to redemption or refunding prior to maturity at the option of the issuer. A
refunding is a method by which a bond issue is redeemed before maturity by the
proceeds of a new bond issue.
Redemption pursuant to call provisions generally will, and redemption
pursuant to sinking fund provisions may, occur at times when the redeemed Bonds
have an offering side valuation which represents a premium over par. To the
extent that the Bonds were deposited in the Trust at a price higher than the
price at which they are redeemed, this will represent a loss of capital when
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 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 "Tax Status" in
Part B.
(6) See Note (1) to "Statement of Condition as of Date of Deposit" regarding
cost of Bonds. The offering prices are greater than the current bid prices of
the Bonds which is the basis on which Redemption Price per Unit is determined
for purposes of redemption of Units (see the first paragraphs under "Public
Offering--Offering Price" and "Rights of Unit Holders--Redemption--Computation
of Redemption Price Per Unit" in Part B). On the business day prior to the Date
of Deposit the aggregate bid side valuation of the Securities in the Trust was
lower than the aggregate offering side valuation by .739%. Yield of Bonds was
computed on the basis of offering prices on the Date of Deposit.
Bonds identified as escrowed to maturity under "Portfolio" for the Trust in
this Part A are priced to the maturity date not the call date.
(7) Annual interest income to the Trust is $545,050.00.
(8) Yield calculated based on a call date prior to stated maturity.
A-10
452088.1
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITING ACCOUNT
The names and addresses of the Underwriters and the number of Units of
the Trust each has agreed to purchase from the Underwriting Account are:
<S> <C> <C>
Units
Name Address Series 133
Glickenhaus & Co............................... 6 East 43rd Street, New York, New York 10017 3400
Lebenthal & Co., Inc........................... 120 Broadway, New York, New York 10271 3400
Gruntal & Co., Inc............................. 14 Wall Street, New York, New York 10005 1200
David Lerner Associates, Inc. ................. 477 Jericho Turnpike, Syosset, New York 11791 250
Advest Incorporated............................ 280 Trumbull Street, Hartford, Connecticut 06103 250
Josephthal Lyon & Ross Incorporated............ 6 East 43rd Street, New York, New York 10017 250
Smith Barney Inc. ............................. 388 Greenwich Street, New York, New York 10013 150
Cadaret, Grant & Co., Inc. .................... 108 W. Jefferson Street, Syracuse, New York 13203 100
Cowen & Company................................ Financial Square, New York, New York 10005 100
Everen Securities, Inc. ....................... 77 West Wacker Drive, Chicago, Illinois 60606 100
Federated Securities, Inc...................... P.O. Box 214, Huntington Station, New York 11746 100
Kirlin Securities, Inc......................... 6901 Jericho Turnpike, Syosset, New York 11791 100
Oppenheimer & Company, Inc..................... World Financial Center, New York, New York 10281 100
Nathan & Lewis Securities, Inc................. 1140 Avenue of the Americas, New York, New York 10036 100
Sage, Rutty & Co. Inc.......................... 183 E. Main Street, Rochester, New York 14604 100
Samuel A. Ramirez & Co., Inc................... 61 Broadway, New York, New York 10006 100
Stuart, Coleman & Co., Inc..................... 11 West 42nd Street, New York, New York 10036 100
W.H. Newbolds, a division of
Fahnestock & Co.............................. 1500 Walnut Street, Philadelphia, Pennsylvania 19102 100
------
10,000
</TABLE>
A-11
452088.1
<PAGE>
TAX EQUIVALENT YIELDS
The following tables indicate the approximate yield resident individuals in
various income brackets must earn on a security subject to Federal, New York
State and New York City income taxes to receive an after-tax yield equivalent to
that provided by a tax-exempt bond yielding from 4.5% to 8.5%, based on
anticipated 1997 Federal, New York State and New York City marginal tax rates.
New York City taxpayers should refer to Table I. New York State taxpayers
outside of New York City should refer to Table II.
<TABLE>
<CAPTION>
TABLE I. COMBINED EFFECT OF FEDERAL, NEW YORK STATE AND NEW YORK CITY INCOME TAXES
Approx.
1997 To equal a tax-exempt yield of:
-----------------------------------------------------
Federal, .00% .00% .00% .00%
NYS 4.50%5 5.50% 6 6.50% 7 7.50% 8 8.50%
-----------------------------------------------------
If your net taxable income1
is approximately2 Marginal
Joint ReturnSingle Return Tax Rates4 A taxable investment would have to pay you:3
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
$22,001-$41,200 $12,001-$24,650 24.02% 5.9% 6.6% 7.2% 7.9% 8.6% 9.2% 9.9% 10.5% 11.2%
- ---------------------------------------------------------------------------------------------------
$41,201-$99,600 $24,651-$59,750 35.73% 7.0% 7.8% 8.6% 9.3% 10.1% 10.9%11.7% 12.5% 13.2%
- ---------------------------------------------------------------------------------------------------
$99,601-$151,750 $59,751-$124,650 39.23% 7.4% 8.2% 9.1% 9.9% 10.7% 11.5%12.3% 13.2% 14.0%
- ---------------------------------------------------------------------------------------------------
$151,751-$271,050 $124,651-$271,050 43.83% 8.0% 8.9% 9.8%10.7% 11.6% 12.5%13.4% 14.2% 15.1%
- ---------------------------------------------------------------------------------------------------
$271,050+ $271,050+ 47.14% 8.5% 9.5% 10.4%11.4% 12.3% 13.2%14.2% 15.1% 16.1%
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE II. COMBINED EFFECT OF FEDERAL AND NEW YORK STATE INCOME TAXES
Approx.
1997 To equal a tax-exempt yield of:
--------------------------------------------------------
ederal, .50% .50% .00%
F NYS 4.50% 5.00% 5 6.00% 6 7.00% 7.50% 8 8.50%
--------------------------------------------------------
If your net taxable income1 A taxable investment would have to pay you:3
is approximately2 Marginal
Joint ReturnSingle Return Tax Rates5
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
$22,001-$41,200 $11,001-$24,650 20.82% 5.7% 6.3% 7.0% 7.6% 8.2% 8.8% 9.5% 10.1% 10.7%
- ---------------------------------------------------------------------------------------------------
$41,201-$99,600 $24,651-$59,750 32.93% 6.7% 7.5% 8.2% 9.0% 9.7% 10.4% 11.2% 11.9% 12.7%
- ---------------------------------------------------------------------------------------------------
$99,601-$151,750 $59,751-$124,650 36.59% 7.1% 7.9% 8.7% 9.5% 10.3% 11.0% 11.8% 12.6% 13.4%
- ---------------------------------------------------------------------------------------------------
$151,751-$271,050$124,651-$271,050 41.39% 7.7% 8.5% 9.4% 10.2% 11.1% 11.9% 12.8% 13.7% 14.5%
- ---------------------------------------------------------------------------------------------------
$271,050+ $271,050+ 44.85% 8.2% 9.1% 10.0% 10.9% 11.8% 12.7% 13.6% 14.5% 15.4%
- ---------------------------------------------------------------------------------------------------
</TABLE>
1After exemptions and deductions other than state and local tax deductions.
2The tables cover only a representative range of incomes, and income
brackets have been rounded off to facilitate illustration. Actual
Federal, New York State and New York City income brackets may differ
slightly from those in the table.
3Yields on taxable investments have been rounded off to facilitate illustration.
4This rate is calculated by using the highest New York State and New
York City marginal tax rates that apply to the bracket. 5This rate is
calculated by using the highest New York State marginal tax rate that
applies to the bracket.
A-12
452088.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST Prospectus Part B
Part B of this Prospectus may not be Distributed Unless Accompanied by Part A
THE TRUST
Organization. The Empire State Municipal Exempt Trust, Guaranteed Series as
designated in Part A (the "Trust"), is one of a series of similar but separate
unit investment trusts created under the laws of the State of New York by a
Trust Indenture and Agreement* (the "Trust Agreement"), dated the Date of
Deposit, among Glickenhaus & Co. and Lebenthal & Co., Inc. as sponsors (the
"Sponsors"), The Bank of New York, as trustee (the "Trustee") and Muller Data
Corporation, as evaluator (the "Evaluator").
On the date of this Prospectus each Unit represented the fractional undivided
interest in the Trust set forth under "Summary of Essential Financial
Information" in Part A. Thereafter, if any Units of the Trust are redeemed by
the Trustee, the fractional undivided interest in the Trust represented by each
unredeemed Unit will increase, although the actual interest in the Trust
represented by each such Unit will remain essentially the same. Units will
remain outstanding until redeemed upon tender to the Trustee by any Unit holder,
which may include the Sponsors, or until the termination of the Trust Agreement
for the related Trust. See "Rights of Unit Holders--Redemption" in this Part B.
Objectives. The objective of the Trust is to obtain tax-exempt interest income
through an investment in a fixed insured portfolio consisting primarily of
various long-term municipal bonds with average maturities of over 10 years. 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 and, of the Insurer to meet its obligations
under the insurance. In addition, an investment in such portfolio can be
affected by fluctuations in interest rates.
Portfolio. The portfolio of the Trust consists of the Bonds described in "The
Portfolio" in Part A and are represented by the Sponsors' contracts to purchase,
which are expected to be settled by the date set forth in Part A. The Trust may
contain Bonds which have been purchased on a when, as, and if issued basis.
Accordingly, the delivery of such Bonds may be delayed or may not occur. (See
"The Portfolio" in Part A.) Interest on these Bonds begins accruing to the
benefit of Unit holders on their respective dates of delivery. Unit holders will
be "at risk" with respect to these Bonds (i.e., may derive either gain or loss
from fluctuations in the offering side evaluation of the Bonds) from the date
they commit for Units. (See "The Portfolio" in Part A.) For a discussion of the
Sponsors' obligations in the event of the failure of any contract for the
purchase of any of the Bonds and limited right to substitute other bonds to
replace any failed contract, see "The Trust--Substitution of Bonds" in this Part
B. As a result of the MBIA Insurance Corporation insurance, Moody's Investors
Service ("Moody's") has assigned a rating of "Aaa" to all of the Bonds in the
Trust, as insured and Standard & Poor's Corporation, a division of McGraw-Hill
("Standard & Poor's") has assigned a rating of "AAA" to the Units and Bonds
while in the Trust. (See "Insurance on the Bonds" in this Part B).
In view of the Trust's objectives, the following factors, among others, were
considered in selecting the Bonds: (1) all the Bonds are obligations of the
State of New York and counties, municipalities, authorities or political
subdivisions thereof or issued by certain United States territories or
possessions, including Puerto Rico, and their public authorities so that the
interest on them will be exempt from Federal, New York State and New York City
income tax under existing law; (2) the Bonds are varied as to purpose of issue;
(3) in the opinion of the Sponsors, the Bonds are fairly valued relative to
other bonds of comparable quality and maturity; and (4) MBIA Insurance
Corporation insurance for the payment of principal and interest on the Bonds is
available. Subsequent to the Date of Deposit, a Bond may cease to be rated or
its rating may be reduced. Neither event requires an elimination of such Bond
from the portfolio, but such an event may be considered in the Sponsors'
determination to direct the Trustee to dispose of the Bonds. See
"Sponsors-Responsibility" in Part B. The insurance on the Bonds in the portfolio
obtained by the Trust does not cover such Bonds until they are delivered to the
Trust. See "The Trust--General Considerations" in this Part B.
- --------
* References in this Prospectus to the Trust Agreement are qualified in their
entirety by the Trust Agreement which is incorporated herein by reference.
<PAGE>
General Considerations. Because certain of the Bonds may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that the Trust
will retain for any length of time its present size and composition. Except as
described in footnotes to "Summary of Essential Financial Information" for the
Trust interest accrues to the benefit of Unit holders commencing with the
expected date of settlement for purchase of the Units. If a Replacement Bond is
not acquired, accrued interest (at the coupon rate of the Failed Bonds or earned
original issue discount in the case of original issue discount and zero coupon
Bonds) will be paid to Unit holders (from the Deposit Date to the date the
Trustee is notified of the failure of the Sponsors to purchase a Replacement
Bond). All such interest paid to Unit holders which accrued after the date of
settlement for a purchase of Units will be paid by the Sponsors and accordingly
will not be treated as tax-exempt income. In the event a Replacement Bond is not
acquired by the Trust, the net annual interest income per Unit for the Trust
would be reduced and the estimated current return might be lowered.
Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any Security. In the event that any contract for
the purchase of Securities in the Trust fails and no Replacement Bond as
hereinafter defined is acquired, the Sponsors shall refund to all Unit holders
the sales charge attributable to such failed contract, and the principal and
accrued interest (at the coupon rate of the relevant Security or earned original
issue discount in the case of original issue discount and zero coupon Bonds to
the date the Sponsors are notified of the failure) which are attributable to
such failed contract, shall be distributed at the next Monthly Payment Date
which is more than 30 days after the failure to purchase Replacement Bonds. The
portion of such interest paid to a Unit holder which accrued after the expected
date of settlement for purchase of his Units will be paid by the Sponsors and
accordingly will not be treated as tax-exempt income.
The following paragraphs discuss the characteristics of the Bonds in the
Trust and of certain types of issuers of the Bonds in the Trust. These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payment of principal of and
interest on Bonds held in the portfolio of the Trust or which may adversely
affect the ratings of such Bonds. Because of the insurance obtained by the
Sponsors or by the issuers for the Trust, however, such changes should not
adversely affect the Trust's ultimate receipt of principal and interest, the
Standard & Poor's or Moody's ratings of the Bonds in the portfolio, or the
Standard & Poor's rating of the Units of the Trust. An investment in Units of
the Trust should be made with an understanding of the risks that such an
investment may entail, certain of which are described below. Unit holders may
obtain additional information concerning a particular Bond by requesting an
official statement from the issuer of such Bond.
General Obligation Bonds. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. The taxing power of any governmental entity may be limited, however,
by provisions of state constitutions or laws, and an entity's credit will depend
on many factors, including potential erosion of the tax base due to population
declines, natural disasters, declines in the issuer's industrial or economic
base or inability to attract new industries; economic limits on the ability to
tax without eroding the tax base; 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
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 or ability 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,
B-2
369165.1
<PAGE>
and the obligation of the governmental lessee is not backed by a pledge of the
general credit of the governmental lessee. In the event of non-appropriation,
the Sponsors may instruct the Trustee to sell such Bonds.
Moral Obligation Bonds. Certain of the Bonds in the Trust may be secured by
pledged revenues and additionally by the so-called "moral obligations" of the
State or a local governmental body. Should the pledged revenues prove
insufficient, the payment of such Bonds is not a legal obligation of the State
or governmental entity, and is subject to its willingness to appropriate funds
therefor.
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 "The Trust--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 owners of housing projects for low
to moderate income families. Since such obligations are not general obligations
of a particular state or municipality or other governmental authority 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. Certain Bonds may be bonds issued to finance
public power facilities. Certain risks associated with the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and operation
of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials and
the disposal of radioactive waste; and the effects of energy conservation.
Certain Bonds may have been issued in connection with the financing of nuclear
generating facilities. In view of recent developments in connection with such
facilities, legislative and administrative actions have been taken and proposed
relating to the development and operation of nuclear generating facilities. The
Sponsors are unable to predict whether any such actions or whether any such
proposals or litigation, if enacted or instituted, will have an adverse impact
on the revenues available to pay the debt service on the Bonds in the portfolio
issued to finance such nuclear projects.
Each of the problems referred to above could adversely affect the ability of
the issuers of public power revenue bonds to make payments of principal of
and/or interest on Bonds issued by public utilities. In addition, certain
B-3
369165.1
<PAGE>
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
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,
- --------
* For purposes of the description of users of facilities, all references to
"corporations" shall be deemed to include any other nongovernmental person or
entity.
B-4
369165.1
<PAGE>
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.
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 "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
B-5
369165.1
<PAGE>
for the holders of taxable obligations. In addition, the Code provides that the
basis of a tax-exempt obligation is increased by the amount of accrued
tax-exempt original issue discount. These provisions are applicable to
obligations issued after September 3, 1982 and acquired after March 1, 1984.
Each Trust's tax basis in a Bond is increased by any accrued original issue
discount as is a Unit holder's tax basis in his Units. For Bonds issued after
June 9, 1980 that are redeemed prior to maturity, the difference between the
Trust's basis, as adjusted, and the amount received will be taxable gain or loss
to the Unit holders. All or a portion of any gain may be taxable as ordinary
income.
There can be no assurance that additional Federal legislation will not be
enacted or that existing legislation will not be amended hereafter with the
effect that interest on bonds becomes subject to Federal income taxation. If the
interest on the Bonds in the Trust should ultimately be deemed to be taxable,
the Trustee may sell them and, since they would be sold as taxable securities,
it is expected that they would have to be sold at a substantial discount from
current market prices.
Bonds Subject to Sinking Fund Provisions. Most of the Bonds in the Trust are
subject to redemption prior to their stated maturity date pursuant to sinking
fund or call provisions. A sinking fund is a reserve fund accumulated over a
period of time for retirement of debt. Sinking fund provisions are designed to
redeem a significant portion of an issue gradually over the life of the issue.
Obligations to be redeemed are generally chosen by lot. On the Date of Deposit,
the offering valuations of some of the Bonds in the Trust may have been at a
premium and subject to retirement or refunding within ten years of the Date of
Deposit. A callable debt obligation is one which is subject to redemption prior
to maturity at the option of the issuer. To the extent that obligations are
deposited in the Trust at a price higher than their par value, such redemption
at par would result in a loss of capital to a purchaser of Units at their
original public offering price. The estimated current return of the Units might
also be adversely affected if the return on the retired Bonds is greater than
the average return on the Bonds in the Trust. In general, call provisions are
more likely to be exercised when the offering side valuation is at a premium
over par than when it is at a discount from par. See "The Portfolio" in Part A
for a list of original issue discount and/or zero coupon bonds and for a
breakdown of the percentage of Bonds in the Trust with offering side valuations
at a premium, discount or at par. See also "Estimated Current Return and
Estimated Long Term Return" in Part B. 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 Sponsors are
authorized to purchase other bonds ("Replacement Bonds") which the Trustee shall
pay for out of funds held in connection with the Failed Bonds and to accept
delivery of the Replacement Bonds to make up the original corpus of the Trust.
The Replacement Bonds must be purchased within 20 days after delivery of the
notice of the failed contract, and the purchase price (exclusive of accrued
interest) may not exceed the principal attributable to the Failed Bonds. The
Replacement Bonds (i) must be tax-exempt bonds issued by the State of New York
or counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions or their public
authorities as described in the first paragraph under "Portfolio," (ii) must
have a fixed maturity date not exceeding the maturity date of the Failed Bonds
and not less than ten years after the date of purchase, (iii) shall be purchased
at a price that results in a yield to maturity and a current return, in each
case as of the Date of Deposit, at least equal to the yield to maturity and the
current return of the Failed Bonds, (iv) shall not be "when issued" bonds, (v)
must be rated at least equal to the Failed Bonds and (vi) must be eligible for
coverage under the MBIA Insurance Corporation insurance policy obtained by the
Trust. Whenever a Replacement Bond has been acquired for the Trust, the Trustee
shall, within five days thereafter, notify all Unit holders of the Trust of the
acquisition of the Replacement Bond and shall, on the next monthly Payment Date
which is more than 30 days thereafter, make a pro rata distribution of the
amount, if any, by which the cost to the Trust of the Failed Bond exceeded the
cost of the Replacement Bond. Once the original corpus of the Trust is acquired,
the Trustee will have no power to vary the investment of the Trust, i.e., the
Trustee will have no managerial power to take advantage of market variations to
improve a Unit holder's investment.
If the right of limited substitution described in the preceding paragraph
shall not be utilized to acquire Replacement Bonds in the event of a failed
contract, the Sponsors will refund the sales charge attributable to such Failed
Bonds to all Unit holders of the Trust, and distribute the principal and accrued
interest (at the coupon rate of such Failed Bond, or earned original issue
discount in the case of zero coupon bonds, from the Deposit Date to the date the
Sponsors notify the Trustee that they will not purchase Replacement Bonds)
attributable to such Failed Bonds on the next monthly
B-6
369165.1
<PAGE>
Payment Date which is more than 30 days thereafter. In the event a Replacement
Bond is not acquired by the Trust, the Estimated Net Annual Interest Income per
Unit for the Trust would be reduced and the Estimated Current Return thereon
might be lowered.
Other Matters. An amendment to the Federal Bankruptcy Act relating to the
adjustment of indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or otherwise
alter the terms of its obligations, including those of the type comprising the
Trust's portfolio. The Sponsors are unable to predict at this time what effect,
if any, this legislation will have on the Trust.
To the best knowledge of the Sponsors, there is no litigation pending as of
the Date of Deposit in respect of any Securities which might reasonably be
expected to have a material adverse effect upon the Trust. At any time after the
Date of Deposit, however, litigation may be initiated on a variety of grounds
with respect to Securities in the Trust. Such litigation as, for example, suits
challenging the issuance of pollution control revenue bonds under recently
enacted environmental protection statutes, may affect the validity of such
Securities or the tax-free nature of the interest thereon. While the outcome of
such litigation can never be entirely predicted with certainty, bond counsel 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 5.152% thereof equal
to 4.9% of the Public Offering Price. During the initial public offering period,
sales of at least 250 Units will be entitled to a volume discount from the
Public Offering Price as described below. For purchases settling after the First
Settlement Date, a proportionate share of accrued and undistributed interest on
the Securities at the date of delivery of the Units to the purchaser is also
added to the Public Offering Price.
During the initial offering period the aggregate offering price of the
Securities in the Trust is determined by the Evaluator (1) on the basis of
current offering prices for the Securities,* (2) if offering prices are not
available for any Securities, on the basis of current offering prices for
comparable securities, (3) by making an appraisal of the value of the Securities
on the basis of offering prices in the market, or (4) by any combination of the
above. Such determinations are made each business day during the initial public
offering period as of the Evaluation Time set forth in the "Summary of Essential
Financial Information" in Part A, effective for all sales made subsequent to the
last preceding determination. For information relating to the calculation of the
Redemption Price, which is based upon the aggregate bid price of the underlying
Securities and which may be expected to be less than the aggregate offering
price, see "Rights of Unit Holders--Redemption" in Part B. Unless Securities are
in default in payment of principal or interest or in significant risk of such
default, the Evaluator will not attribute any value to the Units due to the MBIA
Insurance Corporation insurance obtained by the Trust. See also "Rights of Unit
Holders--Certificates" and "Rights of Unit Holders--Redemption" in Part B for
information relating to redemption of Units.
The Evaluator will consider in its evaluation of Securities which are in
default in payment of principal or interest or, in the Sponsors' opinion, in
significant risk of such default ("Defaulted Bonds") and which are covered by
insurance obtained by the Trust the value of the insurance guaranteeing interest
and principal payments. The value of the
- --------
* 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.
B-7
369165.1
<PAGE>
insurance will be equal to the difference between (i) the market value of
Defaulted Bonds assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of Permanent Insurance
and the related custodial fee) and (ii) the market value of such Defaulted Bonds
not covered by Permanent Insurance. In any case the Evaluator will consider the
ability of MBIA Insurance Corporation to meet its commitments under the Trust's
insurance policy, including the commitment to issue Permanent Insurance. The
Evaluator intends to use a similar valuation method with respect to Securities
insured by the Trust if there is a significant risk of default and a resulting
decrease in the market value. For a description of the circumstances under which
a full or partial suspension of the right of Unit holders to redeem their Units
may occur, see "Rights of Unit Holders--Redemption" in Part B.
If the Trustee does not exercise the right to obtain Permanent Insurance as
to any Defaulted Bonds in the Trust, it is the present intention of the Trustee,
so long as the Trust contains either some Bonds not in default or any
Pre-insured Bonds, not to sell Defaulted Bonds to effect redemptions or for any
other reason but rather to retain them in the portfolio BECAUSE VALUE
ATTRIBUTABLE TO THE INSURANCE OBTAINED BY THE TRUST CANNOT BE REALIZED UPON
SALE. Insurance obtained by the issuer of a Pre-insured Bond, or by some party
other than the Trust, is effective so long as such Pre-insured Bond is
outstanding and the insurer of such Bond continues to fulfill its obligations.
Therefore, any such insurance may be considered to represent an element of
market value in regard to the Pre-insured Bond, but the exact effect, if any, of
this insurance on such market value cannot be predicted. Regardless of whether
the insurer of a Pre-insured Bond continues to fulfill its obligations, however,
such Bond will in any case continue to be insured under the policy obtained by
the Trust from MBIA Insurance Corporation as long as the Bond is held in the
Trust.
No value has been ascribed to the MBIA Insurance Corporation insurance
obtained by the Trust as of the date of this Prospectus.
The secondary market Public Offering Price of the Units of the Trust is based
on the aggregate bid price of the Bonds in the Trust (as determined by the
Evaluator) plus a sales charge determined in accordance with the schedule set
forth below, which is based upon the maturities of each Bond in the Trust. The
Sponsors have implemented this variable format as a more equitable method of
assessing the sales charge for secondary market purchases. For purposes of
computation, Bonds will be deemed to mature on their expressed maturity dates
unless the Evaluator evaluates the price of the Bonds to a different date such
as a call date or a mandatory tender date, in which case the maturity will be
deemed to be such other date.
This method of sales charge computation will apply different sales charge
rates to each Bond in the Trust based upon the maturity of each such Bond in
accordance with the following schedule:
Secondary Market
Period Sales Change
------------------------------------
Percentage of Percentage of
Public Offering Net Amount
Per Bond Price Invested
--------------- --------------
Years to Maturity Per Bond
0 months to 2 years...................... 1.0% 1 010%
2 but less than 3........................ 2.0% 2.091%
3 but less than 4........................ 3.0% 3.093%
4 but less than 8........................ 4.0% 4.167%
8 but less than 12....................... 5.0% 5.363%
12 but less than 15...................... 5.5% 5.820%
15 or more............................... 5.9% 6.270%
A minimum sales charge of 1.0% of the Public Offering Price will be
applied to all secondary market unit purchases.
B-8
369165.1
<PAGE>
During the initial public offering period, purchasers of 250 Units or more
will be entitled to a volume discount from the Public Offering Price as set
forth in the table below:
Discount From
Public Offering
Number of Units Price Per Unit
--------------- --------------
250-499........................................ $ 2.50
------------
500-999........................................ 7.50
1,000-1,999.................................... 15.00
2,000 or more.................................. 20.00
Except as discussed under "Distribution of Units" below, the above volume
discount will be the responsibility of the Selling Underwriter or dealer and
will apply on all purchases at any one time by the same person of Units in the
Trust in the amounts stated. Units held in the name of the spouse of the
purchaser or in the name of a child of the purchaser under 21 years of age are
deemed for the purposes hereof to be registered in the name of the purchaser.
The graduated sales charges are also applicable to a trustee or other fiduciary
purchasing Units for a single trust estate or single fiduciary account.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge discussed above is
retained by or remitted to the banks. Under the Glass-Steagall Act, banks are
prohibited from underwriting Trust Units; however, the Glass-Steagall Act does
permit certain agency transactions, and banking regulators have not indicated
that these particular agency transactions are not permitted under such Act.
Market for Units. Although they are not obligated to do so, the Sponsors
intend to maintain a market for the Units of the Trust and continuously to offer
to purchase Units of the Trust during the initial offering period at prices
based upon the aggregate offering price of the Securities in the Trust; and
thereafter at prices based on the aggregate bid price of the related Securities.
After the initial offering period the Sponsors' Repurchase Price shall be not
less than the Redemption Price plus accrued interest through the expected date
of settlement. (See "Rights of Unit Holders--Redemption-- Computation of
Redemption Price per Unit" in Part B). There is no sales charge incurred when a
Unit holder sells Units back to the Sponsors. Any Units repurchased by the
Sponsors may be reoffered to the public by the Sponsors at the Public Offering
Price at such time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for some other
business reason, the Sponsors may discontinue purchases of Units of such Series
at prices based on the aggregate bid price of the Securities. The Sponsors do
not in any way guarantee the enforceability, marketability, or price of any
Security in the portfolio or of the Units of the Trust. In the event that a
market is not maintained for the Units of the Trust, a Unit holder desiring to
dispose of his Units may be able to do so only by tendering such Units to the
Trustee for redemption at the Redemption Price, which is based upon the
aggregate bid price of the underlying Securities. The aggregate bid price of the
Securities in the Trust may be expected to be less than the aggregate offering
price. If a Unit holder wishes to dispose of his Units, he should inquire of the
Sponsors as to current market prices prior to making a tender for redemption to
the Trustee.
See "Rights of Unit Holders--Redemption" and "Sponsors" in Part B.
Employees (and their immediate families) of Glickenhaus & Co. and Lebenthal &
Co., Inc. may, pursuant to employee benefit arrangements, purchase Units of the
Trust at a price equal to the offering side evaluation of the underlying
Securities in the Trust during the initial offering period and at the bid side
thereafter, divided by the number of Units outstanding plus a reduced sales
charge of 1.5% of the Public Offering Price. Such arrangements result in less
selling effort and selling expenses than sales to employee groups of other
companies. Resales or transfers of Units purchased under the employee benefit
arrangements may only be made through the Sponsors' secondary market, so long as
it is being maintained.
B-9
369165.1
<PAGE>
Distribution of Units. The Underwriters of the Units of the Trust are listed in
the Underwriting Account (see "Underwriting Account" in Part A). It is the
Underwriters' intention to qualify Units of the Trust for sale in certain of the
states and to effect a public distribution of the Units solely through their own
organizations. However, Units may be sold to dealers who are members of the
National Association of Securities Dealers, Inc. at prices which represent a
concession equal to $32.00 per Unit from the related Public Offering Price
applicable to sales of fewer than 500 Units subject in each case to change from
time to time by the Agent for the Sponsors. Any volume discount (see "Offering
Price" in Part B) offered to investors will be borne by the selling Underwriter
or dealer except that, during the initial public offering period, the Sponsors
may pay the selling Underwriter or dealer $2.50 per Unit for individual sales of
more than 500 Units.
Sales will be made only with respect to whole Units, and the Sponsors reserve
the right to reject, in whole or in part, any order for the purchase of Units.
Underwriters and broker-dealers of the Trust, banks and/or others are
eligible to participate in a program in which such firms receive from the
Sponsors a nominal award for each of their registered representatives who have
sold a minimum number of units of unit investment trusts created by the Sponsors
during a specified time period. In addition, at various times the Sponsors may
implement other programs under which the sales forces of Underwriters, brokers,
dealers, banks and/or others may be eligible to win other nominal awards for
certain sales efforts, or under which the Sponsors will reallow to any such
Underwriters, brokers, dealers, banks and/or others that sponsor sales contests
or recognition programs conforming to criteria established by the Sponsors, or
participate in sales programs sponsored by the Sponsors, an amount not exceeding
the total applicable sales charges on the sales generated by such person at the
public offering price during such programs. Also, the Sponsors in their
discretion may from time to time, pursuant to objective criteria established by
the Sponsors, pay fees to qualifying Underwriters, brokers, dealers, banks
and/or others for certain services or activities which are primarily intended to
result in sales of Units of the Trust. Such payments are made by the Sponsors
out of their own assets and not out of the assets of the Trust. These programs
will not change the price Unit holders pay for their Units or the amount that
the Trust will receive from the Units sold.
Sponsors' and Underwriters' Profits. As set forth under "Public
Offering--Offering Price" in Part B, the Underwriters will receive gross
commissions equal to the specified percentages of the Public Offering Price of
the Units of the Trust. The Sponsors will receive from the Underwriters the
excess of such gross sales commission over $35 per Unit from Underwriters
underwriting 100 to 249 Units, will receive the excess over $36 per Unit from
Underwriters underwriting 250 to 499 Units, will receive the excess over $37 per
Unit from Underwriters underwriting 500 to 749 Units, will receive the excess
over $38 per Unit from Underwriters underwriting 750 to 999 Units, will receive
the excess over $39 per Unit from Underwriters underwriting 1,000 or more Units
and will receive the excess over $40 per Unit from Underwriters who underwrite
15% or more of the Units of the Trust. In addition, the Sponsors may, during the
initial public offering period, pay any Underwriter an additional $2.50 per Unit
for sales to individual purchasers of 500 or more Units. The Sponsors may also
from time to time pay, in addition to the amounts referenced above, an
additional concession, in the form of cash or other compensation, any
Underwriter who underwrites or sells, during a specific period, minimum dollar
amounts of the Units of the Trust. In no event will such additional concession
paid by the Sponsors to the Underwriter exceed the difference between the sales
charge and the Underwriter's allowance in respect of Units underwritten by the
Underwriter. Such Units then may be distributed to the public by the dealers at
the Public Offering Price then in effect.
In addition, the Sponsors realize a profit or sustain a loss, as the case may
be, in the amount of any difference between the cost of the Securities to the
Trust (which is based on the aggregate offering price of the Securities on the
Date of Deposit) and the purchase price of such Securities to the Sponsors
(which is the cost of such Securities at the time they were acquired for the
account of the Trust). The Underwriters share in the profits, if any, described
in the preceding sentence. See "Summary of Essential Financial Information" in
Part A. In addition, the Sponsors may realize profits or sustain losses with
respect to Bonds deposited in the Trust which were acquired from one or more of
the Sponsors or from underwriting syndicates of which they were members. During
the initial offering period, the Underwriters also may realize profits or
sustain losses as a result of fluctuations after the Date of Deposit in the
offering prices of the Securities and hence in the Public Offering Price
received by the Underwriters for Units. Cash, if any, made available to the
Sponsors prior to the settlement date for the purchase of Units of the Trust may
be used in the Sponsors' businesses, subject to the limitations of the
Securities Exchange Act of 1934 and may be of benefit to the Sponsors.
B-10
369165.1
<PAGE>
The Sponsors may have participated as underwriters or as managers or members
of underwriting syndicates from which some of the aggregate principal amount of
the Bonds were acquired for the Trust in the amounts set forth in Part A. The
Sponsors have not purchased any of the Securities in the Trust from their
managed accounts.
In maintaining a market for the Units of the Trust (see "Market for Units")
the Sponsors and Underwriters will also realize profits or sustain losses in the
amount of any difference between the price at which they buy Units and the price
at which they resell or redeem such Units and to the extent they earn sales
charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In contrast,
tax-exempt bonds customarily are offered on a "yield price" basis. Therefore,
the rate of return on each Unit is measured in terms of both Estimated Current
Return and Estimated Long-Term Return. Estimated Current Return based on the
Public Offering Price per Unit and Estimated Long-Term Return per Unit, each as
of the business day prior to the Date of Deposit, is set forth under "Summary of
Essential Financial Information " in Part A. Information regarding the estimated
monthly distributions of principal and interest to Unit holders of the Trust is
available from the Sponsors on request.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price. Estimated Net Annual
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 on the Bond's
purchase price. Moreover, because interest rates on Bonds purchased at a premium
are generally higher than current interest rates on newly issued bonds of a
similar type with comparable ratings, the Estimated Current Return per Unit may
be affected adversely if such Bonds are redeemed prior to their maturity.
Therefore, there is no assurance that the Estimated Current Return as set forth
under "Summary of Essential Financial Information" in Part A will be realized in
the future.
Estimated Long-Term Return is calculated using a formula that (i) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (taking into account the amortization of premiums and the
accretion of discounts) and estimated retirements of all the Bonds in the Trust
and (ii) takes into account the expenses and sales charge associated with each
Unit of the Trust. The Estimated Long-Term Return assumes that each Bond is
retired on its pricing life date (i.e., that date which produces the lowest
dollar price when yield price calculations are done for each optional call date
and the maturity date of a callable security). If the Bond is retired on any
optional call or maturity date other than the pricing life date, the yield to
the holder of that Bond will be greater than the initial quoted yield. Since the
market values and estimated retirements of the Bonds, the expenses of the Trust
and the Net Annual Interest Income and Public Offering Price per Unit may
change, there is no assurance that the Estimated Long-Term Return as set forth
under "Summary of Essential Financial Information" in Part A will be realized in
the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Bonds in the Trust has been obtained from the Insurer by the
Trust. The Insurer has issued a policy of insurance covering each of the Bonds
in the Trust, including Pre-insured Bonds. The insurance obtained by the Trust
from the MBIA Insurance Corporation is only effective as to Bonds owned by and
held in the Trust and, consequently, does not cover Bonds for which the contract
for purchase fails. A "when issued" Bond will be covered under the MBIA
Insurance Corporation policy upon the settlement date of the issue of such "when
issued" Bond. The MBIA Insurance Corporation policy shall continue in force only
with respect to Bonds held in and owned by the Trust, and the Insurer shall not
have any liability under the policy with respect to any Bonds which do not
constitute part of the Trust. In determining to insure the Bonds, the Insurer
has applied its own standards which generally correspond to the standards it has
established for determining the insurability of new issues of municipal bonds.
See "Notes to Portfolio" in Part A of this Prospectus.
B-11
369165.1
<PAGE>
By the terms of its policy, the Insurer will unconditionally guarantee to the
Trust the payment, when due, required of the issuer of the Bonds of an amount
equal to the principal of (either at the stated maturity or by any advancement
of maturity pursuant to a mandatory sinking fund payment) and interest on the
Bonds as such payments shall become due but not paid. No representation is made
as to the ability of the insurer to meet its commitments. Except as provided
below with respect to issues of small issue industrial development Bonds and
pollution control revenue Bonds, in the event of any acceleration of the due
date of principal by reason of mandatory or optional redemption (other than
mandatory sinking fund redemption), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as would have been due
had there not been an acceleration. The Insurer will be responsible for such
payments less any amounts received by the Trust from any trustee for the Bond
issuers or from any other source. Except as provided below, the MBIA Insurance
Corporation policy does not guarantee payment on an accelerated basis, the
payment of any redemption premium or the value of the Units of the Trust. The
MBIA Insurance Corporation policy also does not insure against nonpayment of
principal of or interest on the Bonds resulting from the insolvency, negligence
or any other act or omission of the Trustee or other paying agent for the Bonds.
However, with respect to small issue industrial development Bonds and pollution
control revenue Bonds covered by the policy, the Insurer guarantees any
accelerated payments required to be made by or on behalf of an issuer of such
Bonds if there occurs pursuant to the terms of the Bonds an event which results
in the loss of the tax-exempt status of interest on such Bonds, including
principal, interest or premium payments payable thereon, if any, as and when
required to be made by or on behalf of the issuer pursuant to the terms of such
Bonds. No assurance can be given that the MBIA Insurance Corporation policy
would insure the payment of principal or interest on Bonds which is not required
to be paid by the issuer thereof because the Bonds were not validly issued. At
the respective times of issuance of the Bonds, opinions relating to the validity
thereof were rendered by bond counsel to the respective issuing authorities.
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. If an
issue is accepted for MBIA Insurance Corporation insurance, a non-cancelable
policy for the payment of interest on and principal of the bonds is issued by
the Insurer. A single or annual premium is paid by the issuer or any other party
for its insurance on Pre-insured Bonds, and a monthly premium is paid by the
Trust for the insurance it obtains from the Insurer on the Bonds in the Trust
that are not also MBIA Insurance Corporation Pre-insured Bonds or Municipal Bond
Insurance Association Pre-insured Bonds. No premium will be paid by the Trust
for the insurance it obtains from the Insurer on Bonds that are also MBIA
Insurance Corporation Pre-insured Bonds or Municipal Bond Insurance Association
Pre-insured Bonds.
The MBIA Insurance Corporation insurance policy is non-cancelable and will
continue in force so long as the Trust is in existence and the Securities
described in the policy continue to be held in and owned by the Trust. Failure
to pay premiums on the MBIA Insurance Corporation policy obtained by the Trust
will not result in the cancellation of insurance but will force the Insurer to
take action against the Trustee to recover premium payments due it. The Trustee
in turn will be entitled to recover such payments from the Trust.
The MBIA Insurance Corporation policy shall terminate as to any Bond which
has been redeemed from the Trust or sold by the Trustee on the date of such
redemption or on the settlement date of such sale, and the Insurer shall not
have any liability under the policy as to any such Bond thereafter. If the date
of such redemption or the settlement date of such sale occurs between a record
date and a date of payment of any such Bonds, the MBIA Insurance Corporation
policy will terminate as to such Bond on the business day next succeeding such
date of payment. The termination of the MBIA Insurance Corporation policy as to
any Bond shall not affect the Insurer's obligations regarding any other Bond in
the Trust or any other trust which has obtained a MBIA Insurance Corporation
insurance policy. The MBIA Insurance Corporation policy will terminate as to all
Bonds on the date on which the last of the Bonds matures, is redeemed or is sold
by the Trust.
Pursuant to an irrevocable commitment of the Insurer, the Trustee upon the
sale of a Bond in the Trust has the right to obtain permanent insurance with
respect to such Bond (i.e., insurance to maturity of the Bond) (the "Permanent
Insurance") upon the payment of a single predetermined insurance premium from
the proceeds of the sale of such Bond. Accordingly, any Bond in the Trust is
eligible to be sold on an insured basis. It is expected that the Trustee will
exercise the right to obtain Permanent Insurance for a Bond in the Trust upon
instruction from the Sponsors only if upon such exercise the Trust would receive
net proceeds (sale of Bond proceeds less the insurance premium attributable to
the Permanent Insurance and the related custodial fee) from such sale in excess
of the sale proceeds if such Bond were sold on an uninsured basis.
B-12
369165.1
<PAGE>
The Permanent Insurance premium with respect to each Bond in the Trust is
determined based upon the insurability of each Bond as of the Date of Deposit
and will not be increased or decreased for any change in the creditworthiness of
such Bond unless such Bond is in default as to payment of principal and/or
interest. In such event, the Permanent Insurance premium shall be subject to an
increase predetermined at the Date of Deposit and payable from the proceeds of
the sale of such Bond. See the footnotes to the "Summary of Essential Financial
Information" in Part A for the Trust for the cost of Permanent Insurance as of
the Date of Deposit.
Except as indicated below, insurance obtained by the Trust has no effect on
the price or redemption value of Units thereof. lt is the present intention of
the Evaluator to attribute a value to the insurance obtained by the Trust
(including the right to obtain Permanent Insurance) for the purpose of computing
the price or redemption value of Units thereof only if the Bonds covered by such
insurance are in default in payment of principal or interest or, in the
Sponsors' opinion, in significant risk of such default. The value of the
insurance will be equal to the difference between (i) the market value of a Bond
which is in default in payment of principal or interest or in significant risk
of such default assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of Permanent Insurance
and the related custodial fee) and (ii) the market value of such Bonds not
covered by Permanent Insurance. See "Public Offering--Offering Price" in this
Part B for a more complete description of the Evaluator's method of valuing
defaulted Bonds and Bonds which have a significant risk of default. Insurance
obtained by the issuer of a Bond or by parties other than the Trust is effective
so long as such Pre-insured Bond is outstanding and the insurer of such
Pre-insured Bond continues to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond continues to fulfill
its obligations, however, such Bond will continue to be insured under the policy
obtained by the Trust from the Insurer as long as the Bond is held in the Trust.
Insurance obtained by the issuer of a Bond or by other parties may be considered
to represent an element of market value in regard to the Bonds thus insured, but
the exact effect, if any, of this insurance on such market value cannot be
predicted.
In the event that interest on or principal of a Bond is due for payment but
is unpaid by reason of nonpayment by the issuer thereof, the Insurer will make
payments to its fiscal agent, State Street Bank and Trust Company, N.A., New
York, New York (the "Fiscal Agent"), equal to such unpaid amounts of principal
and interest not later than one business day after the Insurer has been notified
by the Trustee that such nonpayment has occurred (but not earlier than the date
such payment is due). The Fiscal Agent will disburse to the Trustee the amount
of principal and interest which is then due for payment but is unpaid upon
receipt by the Fiscal Agent of (i) evidence of the Trust's right to receive
payment of such principal and interest and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of such
principal or interest then due for payment shall thereupon vest in the Insurer.
Upon payment by the Insurer of any principal or interest payments with respect
to any Bonds, the Insurer shall succeed to the rights of the owner of such Bonds
with respect to such payment.
No representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such information
subsequent to the date thereof. The Sponsors are not aware that the information
herein is inaccurate or incomplete as of the date hereof.
Battle Fowler LLP, special counsel for the Sponsors, have rendered an opinion
to the effect that the payment of proceeds from the insurance will be excludible
from Federal gross income if, and to the same extent as, such interest would
have been so excludible if paid by the issuer of the defaulted obligations. See
"Tax Status" in this Part B.
The contract of insurance relating to the Trust, certain agreements relating
to the Permanent Insurance and the negotiations in respect thereof represent the
only significant relationship between the Insurer and the Trust. Otherwise,
neither the Insurer nor any associate thereof has any material business
relationship, direct or indirect, with the Trust or the Sponsors, except that
the Sponsors may from time to time in the normal course of their business,
participate as underwriters or as managers or as members of underwriting
syndicates in the distribution of new issues of municipal bonds for which a
policy of insurance guaranteeing the payment of interest and principal has been
obtained from the Insurer, and except that James A. Lebenthal, Chairman of the
Board of Directors of Lebenthal & Co., Inc., is a Director of the Insurer's
parent company, MBIA Inc. Although all issues contained in the Trust are
individually insured, neither the Trust, the Units nor the portfolio is insured
directly or indirectly by the Insurer.
B-13
369165.1
<PAGE>
A purpose of the insurance on the Bonds in the portfolio obtained by the
Trust is to obtain a higher yield on the Trust portfolio than would be available
if all the Securities in such portfolio had Standard & Poor's "AAA" rating
and/or Moody's "Aaa" rating but were uninsured and yet at the same time to have
the protection of insurance of payment of interest and principal on the
Securities. There is, of course, no certainty that this result will be achieved.
Any Pre-insured Bonds in the Trust (all of which are rated "AAA" by Standard &
Poor's and/or "Aaa" by Moody's, respectively) may or may not have a higher yield
than uninsured bonds rated "AAA" by Standard & Poor's and/or "Aaa" by Moody's,
respectively. In selecting Pre-insured Bonds for the portfolio of the Trust, the
Sponsors have applied the criteria hereinbefore described.
Because the Securities in the Trust are insured by MBIA Insurance Corporation
as to the payment of principal and interest, Standard & Poor's has assigned its
"AAA" investment rating to the Units and Bonds in the Trust and Moody's has
assigned a rating of "Aaa" to all of the Bonds in the Trust, as insured. See
"Notes to Portfolio" in Part A. These ratings apply to the Bonds only while they
are held in the Trust. Also, these ratings reflect Standard & Poor's and Moody's
current assessments of the creditworthiness of the Insurer and their ability to
pay claims on their policies of insurance. The obtaining of these ratings by the
Trust should not be construed as an approval of the offering of the Units by
Standard & Poor's or Moody's or as a guarantee of the market value of the Trust
or of the Units. These ratings are not a recommendation to buy, hold or sell and
do not take into account the extent to which Trust expenses or portfolio asset
sales for less than the Trust's acquisition price will reduce payment to the
Unit holders of the interest or principal.
For additional information concerning the Insurer, see "The Insurer" in Part
A.
TAX STATUS
Interest income on the Bonds contained in the portfolio of the Trust is, in
the opinion of bond counsel to the issuing governmental authorities, which
opinion was rendered at the time of original issuance of the Bonds, excludible
from gross income under the Code. See "The Trust" in Part A.
Gain (or loss) realized on sale, maturity, or redemption of the Bonds or on
sale or redemption of a Unit is, however, includible in gross income as capital
gain (or loss) for Federal, state and local income tax purposes assuming that
the Unit is held as a capital asset. Such gain (or loss) does not include any
amount received in respect of accrued interest. In addition, such gain (or loss)
may be long or short term depending on the holding period of the Units. Bonds
selling at a market discount tend to increase in market value as they approach
maturity when the principal amount is payable, thus increasing the potential for
taxable gain (or reducing the potential for loss) on their redemption, maturity,
or sale. Gain on the disposition of a Bond purchased at a market discount
generally will be treated as ordinary income, rather than capital gain, to the
extent of accrued market discount. The deductibility of capital losses is
limited to the amount of capital gain; in addition, up to $3,000 of capital
losses of noncorporate Unit holders may be deducted against ordinary income.
Since the proceeds from sales of Bonds, under certain circumstances, may not be
distributed pro-rata, the Unit holder's taxable income for any year may exceed
their actual cash distributions in that year.
In the opinion of Battle Fowler LLP, special counsel for the Sponsors, under
existing law:
The Trust is not an association taxable as a corporation for Federal
income tax purposes, and interest on the Bonds which is excludible from
regular Federal gross income under the Code, when received by the Trust, will
be excludible from the regular Federal gross income of the Unit holders of
the Trust. Any proceeds paid under the insurance policy described above
issued to the Trust with respect to the Bonds and 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
B-14
369165.1
<PAGE>
the Unit holder's method of accounting and depending on the existence of any
original issue discount) by the Trust, and each Unit holder will have a
taxable event when an underlying Bond is disposed of (whether by sale,
redemption, or payment at maturity) or when the Unit holder redeems or sells
his Units. Gain from a sale will be treated as short term or long term
capital gain depending on how long the Bond was held by the Trust. The total
tax basis (i.e., cost) of each Unit to a Unit holder is allocated among each
of the Bonds held in the Trust (in accordance with the proportion of the
Trust comprised by each such Bond) in order to determine his per Unit tax
basis for each Bond, and the tax basis reduction requirements of the Code
relating to amortization of bond premium will apply separately to the per
Unit cost of each such Bond. Therefore, under some circumstances, a Unit
holder may realize taxable gain when his Units are sold or redeemed for an
amount equal to his original cost. No deduction is allowed for the
amortization of bond premium on tax-exempt bonds such as the Bonds. None of
the interest received from the portfolio is subject to the alternative
minimum tax for individuals; however, some or all of the interest received
from the portfolio may be includible in the calculation of a corporation's
alternative minimum tax.
For Federal income tax purposes, when a Bond is sold, a Unit holder may
exclude from his share of the amount received any amount that represents
accrued interest but may not exclude amounts attributable to market discount.
Thus, when a Bond is sold by the Trust, taxable gain or loss will equal the
difference between (i) the amount received (excluding the portion
representing accrued interest) and (ii) the adjusted basis (including any
accrued original issue discount, limited in the case of Bonds issued after
June 8, 1980 to the portion earned from the date of acquisition, as discussed
below). In the case of Bonds acquired at a market discount, gain will be
treated as ordinary income to the extent of accrued market discount.
A Unit holder may also realize taxable gain or loss when a Unit is sold
or redeemed. Taxable gain will result if a Unit is sold or redeemed for an
amount greater than its adjusted basis to the Unit holder. The amount
received when a Unit is sold or redeemed is allocated among all the Bonds in
the Trust in the same manner as when the Trust disposes of Bonds, and the
Unit holder may exclude accrued interest, including the earned portion of any
original issue discount, but not amounts attributable to market discount. In
the case of Bonds acquired at a market discount gain will be treated as
ordinary income to the extent of accrued market discount. The return of a
Unit holder's tax basis is otherwise a tax-free return of capital.
If the Trust purchases any units of a previously issued series then,
based on the opinion of counsel with respect to such series, the Trust's pro
rata ownership interest in the bonds of such series (or any previously issued
series) will be treated as though it were owned directly by the Trust.
Under the income tax laws of the State and City of New York, the Trust
is not an association taxable as a corporation and the income of the Trust
will be treated as the income of the Unit holders.
A Unit holder who is a non-resident of New York will not be subject to
New York State or City income tax on any interest or gain derived from his
interest in the Trust's assets or upon any gain from the sale of his Units
except to the extent that such interest or gain is from property employed in
a business, trade, profession or occupation carried on by him in the State of
New York. An individual Unit holder who resides in New York State or City
will not be subject to State or City tax on interest income derived from the
Bonds held in the Trust (except in certain limited circumstances), although
he will be subject to New York State and, depending upon his place of
residence, City tax with respect to any gains realized when Bonds are sold,
redeemed or paid at maturity or when any such Units are sold or redeemed. In
addition, an individual Unit holder residing in New York State or City will
not be subject to State or City income tax on any proceeds paid under the
insurance policy or policies described above with respect to the Trust which
represent maturing interest on defaulted obligations held by the Trustee if,
and to the same extent as, such interest would have been so excludible if
paid by the issuer of the defaulted obligations. A New York State or City
resident should determine his basis and holding period for his Units for New
York State and City tax purposes in the same manner as for Federal tax
purposes.
The above opinion of Battle Fowler LLP as to the tax status of the Trust is
not affected by the provision of the Trust Agreement that authorizes the
acquisition of Replacement Bonds or by the implementation of the option
automatically to reinvest principal and interest distributions from the Trust
pursuant to the Automatic Accumulation Plan, described under "Automatic
Accumulation Account" in this Part B.
B-15
369165.1
<PAGE>
Among other things, the Code provides for the following: (1) interest on
certain private activity bonds issued after August 7, 1986 is included in the
calculation of the individual's alternative minimum tax (currently taxed at a
rate of up to 28%); none of the Bonds in the Trust is a Private Activity Bond
the interest on which is subject to the alternative minimum tax; (2) interest on
certain Private Activity Bonds issued after August 7, 1986 is included in the
calculation of the corporate alternative minimum tax and 75% of the amount by
which adjusted current earnings (including interest on all tax-exempt bonds,
such as the Bonds) exceed alternative minimum taxable income, as modified for
this calculation, will be included in alternative minimum taxable income.
Interest on the Bonds is includible in the adjusted current earnings of a
corporation for purposes of such alternative minimum tax. The Code does not
otherwise require corporations, and does not require taxpayers other than
corporations, including individuals, to treat interest on the Bonds as an item
of tax preference in computing an alternative minimum tax; (3) subject to
certain exceptions, no financial institution is allowed a deduction for that
portion of the institution's interest expense allocable to tax-exempt interest
on tax-exempt bonds acquired after August 7, 1986; (4) the amount of the
deduction allowed to property and casualty insurance companies for underwriting
loss is decreased by an amount determined with regard to tax-exempt interest
income and the deductible portion of dividends received by such companies; (5)
all taxpayers are required to report for informational purposes on their Federal
income tax returns the amount of tax-exempt interest they receive; (6) an issuer
must meet certain requirements on a continuing basis in order for interest on a
tax-exempt bond to be tax-exempt, with failure to meet such requirements
resulting in the loss of tax exemption; and (7) a branch profits tax on U.S.
branches of foreign corporations is implemented which, because of the manner in
which the branch profits tax is calculated, may have the effect of subjecting
the U.S. branch of a foreign corporation to Federal income tax on the interest
on bonds otherwise exempt from such tax.
Section 86 of the Code provides that a portion of social security benefits is
includible in taxable income for taxpayers whose "modified adjusted gross
income" combined with a portion of their social security benefits exceeds a base
amount. The base amount is $25,000 for an individual, $32,000 for a married
couple filing a joint return and zero for married persons filing separate
returns. Under Section 86 of the Code, interest on tax-exempt bonds is to be
added to adjusted gross income for purposes of determining whether an
individual's income exceeds the base amount above which a portion of the
benefits would be subject to tax.
In addition, certain "S Corporations", with accumulated earnings and profits
from Subchapter C years, may be subject to minimum tax on excess passive income,
including tax-exempt interest, such as interest on the Bonds.
At the time of the original issuance of the Bonds held by the Trust, opinions
relating to the validity of the Bonds and the exemption of interest thereon from
regular Federal income tax were or (with respect to "when issued" Bonds) were to
be rendered by bond counsel to the issuing governmental authorities. Neither the
Sponsors nor their special counsel have made any review of proceedings relating
to the issuance of such Bonds or the basis for bond counsel's opinions.
Under Section 265 of the Code, if borrowed funds are used by a Unit holder to
purchase or carry Units of the Trust, interest on such indebtedness will not be
deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service, the purchase of Units may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to the
purchase of Units. Similar rules are applicable for purposes of state and local
taxation. Also, under Section 291 of the Code, certain financial institutions
that acquire Units may be subject to a reduction in the amount of interest
expense that would otherwise be allowable as a deduction for Federal income tax
purposes. Investors with questions regarding this issue should consult with
their tax advisors.
The Trust may contain Bonds issued with original issue discount. The Code
requires holders of tax-exempt obligations issued with original issue discount,
such as the Trust, to accrue tax-exempt original issue discount by using the
constant interest method provided for the holders of taxable obligations and to
increase the basis of a tax-exempt obligation by the amount of accrued
tax-exempt original issue discount. These provisions are applicable to
obligations issued after September 3, 1982 and acquired after March 1, 1984. The
Trust's tax basis in a Bond is increased by any accrued original issue discount
as is a Unit holder's tax basis in his Units. For Bonds issued after June 9,
1980 that are redeemed prior to maturity, the difference between the Trust's
basis, as adjusted, and the amount received will be taxable gain or loss to the
Unit holders.
B-16
369165.1
<PAGE>
Unit holders should consult their own tax advisors with respect to the state
and local tax consequences of owning original issue discount bonds. It is
possible that under applicable provisions governing determination of such state
and local taxes, interest on tax-exempt bonds such as any Bonds issued with
original issue discount may be deemed to be received in the year of accrual even
though there is no corresponding cash payment.
If a Unit holder's tax cost for his pro rata interest in a Bond exceeds his
pro rata interest in the Bond's face amount, the Unit holder will be considered
to have purchased his pro rata interest in the Bond at a "premium." The Unit
holder will be required to amortize any premium relating to his pro rata
interest in a Bond prior to the maturity of the Bond. Amortization of premium on
a Bond will reduce a Unit holder's tax basis for his pro rata interest in the
Bond, but will not result in any deduction from the Unit holder's income. Thus,
for example, a Unit holder who purchases a pro rata interest in a Bond at a
premium and resells it at the same price will recognize taxable gain equal to
the portion of the premium that was amortized during the period the Unit holder
is considered to have held such interest.
Bond premium must be amortized under the method the Unit holder regularly
employs for amortizing bond premium (assuming such method is reasonable). With
respect to a callable bond, the premium must be computed with respect to the
call price and be amortized to the first call date (and successively to later
call dates based on the call prices for those dates).
In the case of Bonds that are private activity bonds, the opinions of bond
counsel to the respective issuing authorities indicate that interest on such
Bonds is exempt from regular federal income tax. However, interest on such Bonds
will not be exempt from regular federal income tax for any period during which
such Bonds are held by a "substantial user" of the facilities financed by the
proceeds of such Bonds or by a "related person" thereof within the meaning of
the Code. Therefore, interest on any such Bonds allocable to a Unit holder who
is such a "substantial user" or "related person" thereof will not be tax-exempt.
Furthermore, in the case of Bonds that qualify for the "small issue" exemption,
the "small issue" exemption will not be available or will be lost if, at any
time during the three-year period beginning on the later of the date the
facilities are placed in service or the date of issue, all outstanding
tax-exempt IRBs, together with a proportionate share of any present issue, of an
owner or principal user (or related person) of the facilities was determined to
have exceeded $40,000,000 on the date of issue. In the case of Bonds issued
under the $10,000,000 "small issue" exemption, interest on such Bonds will
become taxable if the face amount of the Bonds plus certain capital expenditures
exceeds $10,000,000 within 3 years of the date of issue of such Bonds.
In addition, a Bond can lose its tax-exempt status as a result of other
subsequent but unforeseeable events such as prohibited "arbitrage" activities by
the issuer of the Bond or the failure of the Bond to continue to satisfy the
conditions required for the exemption of interest thereon from regular federal
income tax. No investigation has been made as to the current or future owners or
users of the facilities financed by the Bonds, the amount of such persons'
outstanding tax-exempt private activity bonds, or the facilities themselves, and
no assurance can be given that future events will not affect the tax-exempt
status of the Bonds. Investors should consult their tax advisors for advice with
respect to the effect of these provisions on their particular tax situation.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME TAX
PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER THE INCOME TAX LAWS OF
ANY STATE OR LOCAL GOVERNMENT. INTEREST INCOME DERIVED FROM THE BONDS IS NOT
EXCLUDED FROM NET INCOME IN DETERMINING NEW YORK STATE OR NEW YORK CITY
FRANCHISE TAXES ON CORPORATIONS OR FINANCIAL INSTITUTIONS. THE LAWS OF SUCH
STATES AND LOCAL GOVERNMENTS VARY WITH RESPECT TO THE TAXATION OF SUCH
OBLIGATIONS.
From time to time, proposals have been introduced before Congress, the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals, including proposals for a "flat tax" or
"consumption tax", may be introduced in the future. The Sponsors cannot predict
whether additional legislation, if any, in respect of the Federal income tax
status of interest on debt obligations may be enacted and what the effect of
such legislation would be on Bonds in the Trust.
The Revenue Reconciliation Act of 1993 increases maximum marginal tax rates
for individuals and corporations, extends the authority to issue certain
categories of tax-exempt bonds (qualified small issue bonds and qualified
mortgage bonds), expands a category of qualified tax-exempt bonds (bonds for
high-speed intercity rail facilities), limits the
B-17
369165.1
<PAGE>
availability of capital gain treatment for tax-exempt bonds purchased at a
market discount, and makes a variety of other changes. Prospective investors are
urged to consult their own tax advisors as to the effect of this Act on a
possible investment in the Trust.
In South Carolina v. Baker, the U.S. Supreme Court held that the federal
government may constitutionally require states to register bonds they issue and
subject the interest on such bonds to federal income tax if not registered, and
that there is no constitutional prohibition against the federal government's
taxing the interest earned on state or other municipal bonds. The Supreme Court
decision affirms the authority of the federal government to regulate and control
bonds such as the Bonds in the Trust and to tax interest on such bonds in the
future. The decision does not, however, affect the current exemption from
taxation of the interest earned on the Bonds in the Trust in accordance with
Section 103 of the Code.
The opinions of counsel to the issuing governmental authorities to the effect
that interest on the Bonds is exempt from regular federal income tax may be
limited to law existing at the time the Bonds were issued, and may not apply to
the extent that future changes in law, regulations or interpretations affect
such Bonds. Investors are advised to consult their own advisors for advice with
respect to the effect of any legislative changes.
RIGHTS OF UNIT HOLDERS
Certificates. Ownership of Units of the Trust is evidenced by registered
certificates executed by the Trustee and the Sponsors. The Trustee is authorized
to treat as the record owner of Units that person who is registered as such
owner on the books of the Trustee. Certificates are transferable by presentation
and surrender to the Trustee properly endorsed and accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit holder may be required to pay $2.00 per certificate reissued or
transferred and to pay any governmental charge that may be imposed in connection
with each such transfer or interchange. For new certificates issued to replace
destroyed, stolen or lost certificates, the Unit holder must furnish indemnity
satisfactory to the Trustee and must pay such expenses as the Trustee may incur.
Mutilated certificates must be surrendered to the Trustee for replacement.
Distribution of Interest and Principal. While interest will be distributed
semi-annually or monthly, depending on the method of distribution chosen,
principal, including capital gains, will be distributed only semi-annually;
provided, however, that, other than for purposes of redemption, no distribution
need be made from the Principal Account if the balance therein is less than
$1.00 per Unit then outstanding, and that, if at any time the pro rata share
represented by the Units of cash in the Principal Account exceeds $10.00 as of a
Monthly Record Date, the Trustee shall, on the next succeeding Monthly
Distribution Date, distribute the Unit holder's pro rata share of the balance of
the Principal Account. Interest (semi-annually or monthly) and principal,
including capital gains, if any (semi-annually), received by the Trust will be
distributed on each Distribution Date to Unit holders of record of the Trust as
of the preceding Record Date who are entitled to such distributions at that time
under the plan of distribution chosen. All distributions will be net of
applicable expenses and funds required for the redemption of Units. See "Summary
of Essential Financial Information" in Part A, "Rights of Unit Holders--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
B-18
369165.1
<PAGE>
Date will receive their first distribution on the second Distribution Date
following their purchase of Units under the applicable plan of distribution.
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 the footnotes 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 "Rights of Unit Holders--Expenses and Charges" in
Part B. The Trustee also may withdraw from said accounts such amounts, if any,
as it deems necessary to establish a reserve for any governmental charges
payable out of the Trust. Amounts so withdrawn shall not be considered a part of
the Trust's assets until such time as the Trustee shall return all or any part
of such amounts to the appropriate account. In addition, the Trustee may
withdraw from the Interest Account and the Principal Account such amounts as may
be necessary to cover redemption of Units by the Trustee. See "Rights of Unit
Holders--Redemption" in Part B. Funds which are available for future
distributions, payments of expenses and redemptions are in accounts which are
non-interest bearing to the Unit holders and are available for use by the
Trustee pursuant to normal banking procedures.
Because interest on Securities in the Trust is payable at varying intervals,
usually in semi-annual installments, the interest accruing to the Trust will not
be equal to the amount of money received and available monthly for distribution
from the Interest Account to Unit holders choosing the monthly payment plan.
Therefore, on each monthly Distribution Date, the amount of interest actually
deposited in the Interest Account and available for distribution may be slightly
more or less than the monthly interest distribution made. In order to eliminate
fluctuations in monthly interest distributions resulting from such variances
during the first year of the Trust, the Trustee is required by the Trust
Agreement to advance such amounts as may be necessary to provide monthly
interest distributions of approximately equal amounts. In addition, the Trustee
has agreed to advance sufficient funds to the Trust in order to reduce the
amount of time before monthly distributions of interest to Unit holders
commence. The Trustee will be reimbursed, without interest, for any such
advances from funds available from the Interest Account of the Trust. The
Trustee's fee takes into account the costs attributable to the outlay of capital
needed to make such advances.
In order to acquire certain of the Securities subject to contract, it may be
necessary to pay on the settlement dates for delivery of such Securities amounts
covering accrued interest on such Securities which exceed the amounts paid by
Unit holders (which excess will be made available under a letter of credit
furnished by the Sponsors on the Date of Deposit). The Trustee has agreed to pay
for any amounts necessary to cover any such excess and will be reimbursed
therefor (without interest) when funds become available from interest payments
on the particular Securities with respect to which such payments may have been
made. Also, since interest on such Securities in the portfolio of the Trust (see
"The Portfolio" in Part A) does not begin accruing as tax-exempt interest income
to the benefit of Unit holders until such Bonds' respective dates of delivery
(accrued interest prior to delivery being treated under the Code as a return of
principal), the Trustee will, in order to cover interest treated as a return of
principal, adjust its fee downward in an
B-19
369165.1
<PAGE>
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
and selling expenses, as well as any organizational expenses not paid by the
Trust, will be borne by the Sponsors at no cost to the Trust.
Fees. The Trustee's, Sponsors' and Evaluator's fees are set forth under the
"Summary of Essential Financial Information" in Part A. The Sponsors' fee, which
is earned for portfolio supervisory services, is based on the face amount of
Securities in the Trust at December 1 of each year. The Sponsors' fee, which is
not to exceed the maximum amount set forth under the "Summary of Essential
Financial Information" for the Trust, may exceed the actual costs of providing
portfolio supervisory services for the Trust, but at no time will the total
amount the Sponsors receive for portfolio supervisory services rendered to all
series of Empire State Municipal Exempt Trust in any calendar year exceed the
aggregate cost to them of supplying such services in such year.
The Trustee will receive for its ordinary recurring services to the Trust an
annual fee in the amount set forth in the "Summary of Essential Financial
Information" for the Trust; provided, however, that such fees may be adjusted as
set forth under the "Summary of Essential Financial Information". There is no
minimum fee and, except as hereinafter set forth, no maximum fee. For a
discussion of certain benefits derived by the Trustee from the Trust's funds,
see "Rights of Unit Holders--Distribution of Interest and Principal" in Part B.
For a discussion of the services performed by the Trustee pursuant to its
obligations under the Trust Agreement, reference is made to the material set
forth under "Rights of Unit Holders" in Part B.
The Trustee's and Evaluator's fees are payable monthly on or before each
Distribution Date and the Sponsors' annual fee is payable annually on December
1, each from the Interest Account to the extent funds are available and then
from the Principal Account. These fees may be increased without approval of the
Unit holders by amounts not exceeding proportionate increases in consumer prices
for services as measured by the United States Department of Labor's Consumer
Price Index entitled "All Services Less Rent"; except no such increase in the
Trustee's fee will be so made for the sole purpose of making up any downward
adjustment therein as described in "Summary of Essential Financial Information".
If the balances in the Principal and Interest Accounts are insufficient to
provide for amounts payable by the Trust, or amounts payable to the Trustee
which are secured by its prior lien on the Trust, the Trustee is permitted to
sell Bonds to pay such amounts.
Insurance Premiums. The cost of the MBIA Insurance Corporation insurance
obtained by the Trust, based on the aggregate amount of Bonds in the Trust as of
the Date of Deposit, is set forth in the "Summary of Essential Financial
Information". Premiums, which are obligations of the Trust, are payable monthly
by the Trustee on behalf of the Trust. As Securities in the portfolio mature,
are redeemed by their respective issuers or are sold by the Trustee, the amount
of the premium will be reduced in respect of those Securities no longer owned by
and held in the Trust. The Trust does not incur any premium expense for any
insurance which has been obtained by an issuer of a Pre-insured Bond, since the
premium or premiums for such insurance have been paid by such issuer or other
party. Pre-insured Bonds, however, are additionally insured by the Trust. No
premium will be paid by the Trust on Bonds which are also MBIA Insurance
Corporation Pre-insured Bonds or Municipal Bond Insurance Association
Pre-insured Bonds. The premium payable for Permanent Insurance and the related
custodial fee will be paid solely from the proceeds of
B-20
369165.1
<PAGE>
the sale of a Bond from the Trust in the event the Trustee exercises the right
to obtain Permanent Insurance on such Bond.
Other Charges. The following additional charges are or may be incurred by the
Trust: all expenses (including audit and counsel fees) of the Trustee incurred
in connection with its activities under the Trust Agreement, including annual
audit expenses by independent public accountants selected by the Sponsors (so
long as the Sponsors maintain a secondary market, the Sponsors will bear any
audit expense which exceeds 50 cents per Unit), the expenses and costs of any
action undertaken by the Trustee to protect the Trust and the rights and
interests of the Unit holders; fees of the Trustee for any extraordinary
services performed under the Trust Agreement; indemnification of the Trustee for
any loss or liability accruing to it without willful misconduct, bad faith, or
gross negligence on its part, arising out of or in connection with its
acceptance or administration of the Trust; and all taxes and other governmental
charges imposed upon the Securities or any part of the Trust (no such taxes or
charges are being levied or made or, to the knowledge of the Sponsors,
contemplated). The above expenses, including the Trustee's fee, when paid by or
owing to the Trustee, are secured by a lien on the Trust. In addition, the
Trustee is empowered to sell Securities in order to make funds available to pay
all expenses.
Reports and Records. The Trustee shall furnish Unit holders of the Trust in
connection with each distribution a statement of the amount of interest, if any,
and the amount of other receipts, if any, which are being distributed, expressed
in each case as a dollar amount per Unit. Within a reasonable time after the end
of each calendar year, the Trustee will furnish to each person who at any time
during the calendar year was a Unit holder of record, a statement providing the
following information: (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Securities and any earned original issue discount), and, if the issuers of the
Securities are located in different states or territories, the percentage of
such interest by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust (including insurance
costs), redemptions of Units and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (2) as to the Principal Account: the dates of
disposition of any Securities and the net proceeds received therefrom (including
any unearned original issue discount but excluding any portion representing
interest, with respect to the Trust the premium attributable to the Trustee's
exercise of the right to obtain Permanent Insurance and any related custodial
fee), deductions for payments of applicable taxes and for fees and expenses of
the Trust, purchase of Replacement Bonds, redemptions of Units, the amount of
any "when issued" interest treated as a return of capital and the balance
remaining after such distributions and deductions, expressed both as a total
dollar amount and as a dollar amount representing the pro rata share of each
Unit outstanding on the last business day of such calendar year; (3) a list of
the Securities held and the number of Units outstanding on the last business day
of such calendar year; (4) the Redemption Price per Unit based upon the last
computation thereof made during such calendar year; and (5) amounts actually
distributed during such calendar year from the Interest Account and from the
Principal Account, separately stated, expressed both as total dollar amounts and
as dollar amounts representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit holders at all
reasonable times during usual business hours, books of record and account of its
transactions as Trustee including records of the names and addresses of Unit
holders of the Trust, certificates issued or held, a current list of Securities
in the Trust and a copy of the Trust Agreement.
Redemption. Tender of Units. While it is anticipated that Units can be sold in
the secondary market, Units may also be tendered to the Trustee for redemption
at its corporate trust office at 101 Barclay Street, New York, New York 10286,
upon payment of any applicable tax. At the present time there are no specific
taxes related to the redemption of the Units. No redemption fee will be charged
by the Sponsors or the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be delivered to the Trustee and
must be properly endorsed and accompanied by a written instrument of transfer.
Thus, redemption of Units cannot be effected until certificates representing
such Units have been delivered to the person seeking redemption (see "Rights of
Unit Holders--Certificates" in Part B). Unit holders must sign exactly as their
names appear on the face of the certificate with signature(s) guaranteed by an
officer of a national bank or trust company, a member firm of either the New
York, Midwest or Pacific Stock Exchange, or in such other manner as may be
acceptable to the Trustee. In certain instances
B-21
369165.1
<PAGE>
the Trustee may require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or administrator or
certificates of corporate authority.
Within seven calendar days following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto, the Unit
holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the "Summary of Essential Financial Information" as of the next
subsequent Evaluation Time. See "Redemption--Computation of Redemption Price per
Unit." The "date of tender" is deemed to be the date on which Units are received
by the Trustee, except that as regards Units received after the Evaluation Time
on the New York Stock Exchange, the date of tender is the next day on which such
Exchange is open for trading or the next day on which there is a sufficient
degree of trading in Units of the Trust, and such Units will be deemed to have
been tendered to the Trustee on such day for redemption at the Redemption Price
computed on that day. For information relating to the purchase by the Sponsors
of Units tendered to the Trustee for redemption at prices in excess of the
Redemption Price, see "Rights of Unit Holders--Redemption--Purchase by the
Sponsors 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.
If the Trustee exercises the right to obtain Permanent Insurance on a Bond in
the Trust, such Bond will be sold from the Trust on an insured basis. In the
event that the Trustee does not exercise the right to obtain Permanent Insurance
on a Bond, such Bond will be sold from the Trust on an uninsured basis, since
the MBIA Insurance Corporation insurance obtained by the Trust covers the timely
payment of principal and interest when due on the Bonds only while the Bonds are
held in and owned by the Trust. If the Trustee does not obtain Permanent
Insurance on a Defaulted Bond, to the extent that Bonds which are current in
payment of interest are sold from the Trust portfolio in order to meet
redemption requests and Defaulted Bonds are retained in the Portfolio in order
to preserve the related insurance protection applicable to said Bonds, the
overall value of the Bonds remaining in the Trust will tend to diminish. See
"Sponsors--Responsibility" in Part B for the effect of selling Defaulted Bonds
to meet redemption requests.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or during which trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by rule or
regulation) an emergency exists as a result of which disposal or evaluation of
the underlying Bonds is not reasonably practicable, or for such other periods as
the Securities and Exchange Commission has by order permitted.
Because insurance obtained by the Trust terminates as to Bonds which are sold
by the Trustee, and because the insurance obtained by the Trust does not have a
realizable cash value which can be used by the Trustee to meet redemptions of
Units, under certain circumstances the Sponsors may apply to the Securities and
Exchange Commission for an order permitting a full or partial suspension of the
right of Unit holders to redeem their Units if a significant portion of the
Bonds in the Trust is in default in payment of principal or interest or in
significant risk of such default. No assurances can be given that the Securities
and Exchange Commission will permit the Sponsors to suspend the rights of Unit
holders to redeem their Units, and without the suspension of such redemption
rights when faced with excessive redemptions the Sponsors may not be able to
preserve the benefits of the Trust's insurance on Defaulted Bonds.
Computation of Redemption Price per Unit. The Redemption Price per Unit is
determined by the Trustee on the basis of the bid prices of the Securities in
the Trust, while the Public Offering Price of Units during the initial offering
period is determined on the basis of the offering prices of the Securities, both
as of the Evaluation Time on the day any such determination is made. The bid
prices of the Securities may be expected to be less than the offering prices.
This Redemption Price per Unit is each Unit's pro rata share, determined by the
Trustee, of: (1) the aggregate value of the Securities in the Trust (determined
by the Evaluator as set forth below), except for those cases in which the value
of insurance has been included, (2) cash on hand in the Trust (other than cash
covering contracts to purchase Securities), and (3) accrued and unpaid interest
on the Securities as of the date of computation, less (a) amounts
B-22
369165.1
<PAGE>
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. In determining the Redemption
Price per Unit no value will be assigned to the portfolio insurance obtained by
the Trust on the Bonds in the Trust unless such Bonds are in default in payment
of principal or interest or in significant risk of such default. On the other
hand, Pre-insured Bonds in the Trust are entitled at all times to the benefits
of insurance obtained by their respective issuers so long as the Pre-insured
Bonds are outstanding and the insurer continues to fulfill its obligations, and
such benefits are reflected and included in the market value of Pre-insured
Bonds. For a description of the situations in which the Evaluator may value the
insurance obtained by the Trust, see "Public Offering--Offering Price" in this
Part B.
The difference between the bid and offering prices of the Securities may be
expected to average 1 1/2% of face amount. In the case of actively traded bonds,
the difference may be as little as 1/2 of 1%, and in the case of inactively
traded bonds such difference usually will not exceed 3%. On the business day
prior to the date of this Prospectus, the aggregate bid side evaluation was
lower than the aggregate offering side evaluation by the amount set forth in the
footnotes to the "Portfolio". For this reason, among others, the price at which
Units may be redeemed could be less than the price paid by the Unit holder. On
the Date of Deposit the aggregate current offering price of such Securities per
Unit exceeded the bid price of such Securities per Unit by the amount set forth
under "Summary of Essential Financial Information".
Purchase by the Sponsors of Units Tendered for Redemption. The Trust
Agreement requires that the Trustee notify the Sponsors of any tender of Units
for redemption. So long as the Sponsors are maintaining a bid in the secondary
market, the Sponsors, prior to the close of business on the second succeeding
business day, will purchase any Units tendered to the Trustee for redemption at
the price so bid by making payment therefor to the Unit holder in an amount not
less than the Redemption Price on the date of tender not later than the day on
which the Units would otherwise have been redeemed by the Trustee (see "Public
Offering--Offering Price--Market for Units" in this Part B). Units held by the
Sponsors may be tendered to the Trustee for redemption as any other Units,
provided that the Sponsors shall not receive for Units purchased as set forth
above a higher price than they paid, plus accrued interest.
The offering price of any Units resold by the Sponsors will be the Public
Offering Price determined in the manner provided in this Prospectus (see "Public
Offering--Offering Price" in Part B). Any profit resulting from the resale of
such Units will belong to the Sponsors which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such Units (see "Public Offering--Sponsors' and Underwriters'
Profits" in this Part B).
Exchange Option. The Sponsors of the series of Empire State Municipal Exempt
Trust, (including the series of Municipal Exempt Trust, the predecessor trust to
Empire State Municipal Exempt Trust) (the "Exchange Trusts") are offering Unit
holders of the Exchange Trusts for which the Sponsors are maintaining a
secondary market an option to exchange a Unit of any series of the Exchange
Trusts for a Unit of a different series of the Exchange Trusts being offered by
the Sponsors (other than in the initial offering period) at a Public Offering
Price generally based on the bid prices of the underlying Securities divided by
the number of Units outstanding (see "Public Offering--Offering Price--Markets
for Units") plus a fixed sales charge of $15 per Unit (in lieu of the normal
sales charge). However, a Unit holder must have held his Unit for a period of at
least six months in order to exercise the exchange option or agree to pay a
sales charge based on the greater of $15 per Unit or an amount which together
with the initial sales charge paid in connection with the acquisition of Units
being exchanged equals the normal sales charge of the series into which the
investment is being converted, determined as of the date of the exchange. Such
exchanges will be effected in whole Units only. Any excess proceeds from the
Units being surrendered will be returned, and the Unit holder will not be
permitted to advance any new money in order to complete an exchange. The
Sponsors reserve the right to modify, suspend or terminate this plan at any time
without further notice to the Unit holders. In the event the exchange option is
not available to a Unit holder at the time he wishes to exercise it, the Unit
holder will be immediately notified and no action will be taken with respect to
his Units without further instructions from the Unit holder.
Unit holders are urged to consult their own tax advisors as to the tax
consequences of exchanging Units.
B-23
369165.1
<PAGE>
AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with Empire
Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit holders of
the Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Empire Builder. The Empire Builder is an open-end,
non-diversified investment company whose investment objective is to seek as high
a level of current income exempt from Federal income tax, New York State and New
York City income taxes as is believed to be consistent with preservation of
capital. It is the policy of the Empire Builder to invest primarily in debt
securities the interest income from which is exempt from such taxes.
The Empire Builder has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Empire Builder will
be of "investment grade" quality--that is, at the time of purchase by the Empire
Builder, such bonds either will be rated not lower than the four highest ratings
of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, AA, A or BBB)
or will be unrated bonds which at the time of purchase are judged by the Empire
Builder's investment advisor to be of comparable quality to bonds rated within
such four highest grades. It is a fundamental policy of the Empire Builder that
under normal market conditions at least 90% of the income distributed to its
shareholders will be exempt from Federal income tax, New York State and New York
City personal income taxes. However, during times of adverse market conditions,
when the Empire Builder is investing for temporary defensive purposes in
obligations other than New York tax-exempt bonds, more than 10% of the Empire
Builder's income distributions could be subject to Federal income tax, New York
State and/or New York City income taxes, as described in the current prospectus
relating to the Empire Builder (the "Empire Builder Prospectus"). Glickenhaus &
Co. ("Glickenhaus"), a sponsor of the Trust, acts as the investment adviser and
distributor for the Empire Builder.
Each Unit holder may request from The Bank of New York (the "Plan Agent"), a
copy of the Empire Builder Prospectus describing the Empire Builder and a form
by which such Unit holder may elect to become a participant ("Participant") in
the Plan. Thereafter, as directed by such person, distributions on the
Participant's Units will, on the applicable distribution date, automatically be
applied as of that date by the Trustee to purchase shares (or fractions thereof)
of the Empire Builder at a net asset value as computed as of the close of
trading on the New York Stock Exchange on such date, as described in the Empire
Builder Prospectus. Unless otherwise indicated, new Participants in the Empire
Builder Plan will be deemed to have elected the monthly distribution plan with
respect to their Units. Confirmations of all transactions undertaken for each
Participant in the Plan will be mailed to each Participant by the Plan Agent
indicating distributions and shares (or fractions thereof) of the Empire Builder
purchased on his behalf. A Participant may at any time prior to ten days
preceding the next succeeding distribution date, by so notifying the Plan Agent
in writing, elect to terminate his participation in the Plan and receive future
distributions on his Units in cash. There will be no charge or other penalty for
such termination. The Sponsors, the Trustee, the Empire Builder and Glickenhaus,
as investment advisor for Empire Builder, each will have the right to terminate
this Plan at any time for any reason. The reinvestment of distributions from the
Trust through the Plan will not affect the income tax status of such
distributions. For more complete information about investing in the Empire
Builder through the Plan, including charges and expenses, return the enclosed
card for a copy of the Empire Builder Prospectus. Read it carefully before you
decide to participate.
B-24
369165.1
<PAGE>
[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal & Co., Inc., the
Sponsors have entered into an arrangement (the "Plan") with Lebenthal New York
Municipal Bond Fund (the "Bond Fund") which permits Unit holders of the Trust to
elect to have distributions from Units in the Trust automatically reinvested in
shares of the Bond Fund. The Bond Fund is an open-end, non-diversified
investment company whose investment objective is to maximize current income
exempt from regular Federal income tax, and from New York State and New York
City income taxes, consistent with preservation of capital and with
consideration given to opportunities for capital gain. It is the policy of the
Bond Fund to invest primarily in long term investment grade tax-exempt
securities the interest income from which is exempt from such taxes.
The Bond Fund has an investment objective which differs in certain respects
from that of the Trust. The bonds purchased by the Bond Fund will be of
"investment grade" quality--that is, at the time of purchase by the Bond Fund,
such bonds either will be rated not lower than the four highest ratings of
either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, AA, A or BBB) or
will be unrated bonds which at the time of purchase are judged by the Bond
Fund's investment advisor to be of comparable quality to bonds rated within such
four highest grades. It is a fundamental policy of the Bond Fund that under
normal market conditions at least 80% of the income distributed to its
shareholders will be exempt from regular Federal income tax, and from New York
State and New York City personal income taxes. However, during times of adverse
market conditions, more than 20% of the Bond Fund's income distributions could
be subject to Federal income tax, New York State and/or New York City income
taxes, as described in the current prospectus relating to the Bond Fund (the
"Bond Fund Prospectus"). Lebenthal & Co., Inc., a sponsor of the Trust, acts as
the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the "Plan Agent"), a
copy of the Bond Fund Prospectus describing the Bond Fund and a form by which
such Unit holder may elect to become a participant ("Participant") in the Plan.
Thereafter, as directed by such person, distributions on the Participant's Units
will, on the applicable distribution date, automatically be applied as of that
date by the Trustee to purchase shares (or fractions thereof) of the Bond Fund
at a net asset value as computed as of the close of trading on the New York
Stock Exchange on such date, as described in the Bond Fund Prospectus. Unless
otherwise indicated, new Participants in the Bond Fund Plan will be deemed to
have elected the monthly distribution plan with respect to their Units.
Confirmations of all transactions undertaken for each Participant in the Plan
will be mailed to each Participant by the Plan Agent indicating distributions
and shares (or fractions thereof) of the Bond Fund purchased on his behalf. A
Participant may at any time prior to ten days preceding the next succeeding
distribution date, by so notifying the Plan Agent in writing, elect to terminate
his participation in the Plan and receive future distributions on his Units in
cash. There will be no charge or other penalty for such termination. The
Sponsors, the Trustee, the Bond Fund and Lebenthal & Co. Inc., as manager for
the Bond Fund, each will have the right to terminate this Plan at any time for
any reason. The reinvestment of distributions from the Trust through the Plan
will not affect the income tax status of such distributions. For more complete
information about investing in the Bond Fund through the Plan, including charges
and expenses, return the enclosed card for a copy of the Bond Fund Prospectus.
Read it carefully before you decide to participate.
B-24
369165.1
<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors of Empire State Municipal Exempt
Trust, Series 10 and all subsequent series.
Glickenhaus, a New York limited partnership, is engaged in the underwriting
and securities brokerage business, and in the investment advisory business. It
is a member of the New York Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. and is an associate member of the American Stock
Exchange. Glickenhaus acts as a sponsor for successive Series of The Glickenhaus
Value Portfolios and The Municipal Insured National Trusts, and for the prior
series of Empire State Municipal Exempt Trust including those sold under the
name of Municipal Exempt Trust, New York Exempt Series 1, New York Series 2 and
New York Series 3. Glickenhaus, in addition to participating as a member of
various selling groups of other investment companies, executes orders on behalf
of investment companies for the purchase and sale of securities of such
companies and sells securities to such companies in its capacity as a broker or
dealer in securities.
Lebenthal, a New York corporation originally organized as a New York
partnership in 1925, has been buying and selling municipal bonds for its own
account as a dealer for over 67 years; Lebenthal also buys and sells securities
as an agent and participates as an underwriter in public offerings of municipal
bonds. It acted as a sponsor of Empire State Tax Exempt Bond Trust, Series 8 and
successive Series of The Municipal Insured National Trust through Series 28.
Lebenthal is registered as a broker/dealer with the Securities and Exchange
Commission and various state securities regulatory agencies and is a member of
the National Association of Securities Dealers, Inc. and Securities Investors
Protection Corp.
Limitations on Liability. The Sponsors are jointly and severally liable for the
performance of their obligations arising from their responsibilities under the
Trust Agreement, but will be under no liability to the Unit holders for taking
any action or refraining from any action in good faith or for errors in
judgment; nor will they be responsible in any way for depreciation or loss
incurred by reason of the sale of any Bonds, except in cases of their willful
misconduct, bad faith, gross negligence or reckless disregard for their
obligations and duties. See "The Trust--Portfolio" and
"Sponsors--Responsibility" in Part B.
Responsibility. The Trustee shall sell, for the purpose of redeeming Units
tendered by any Unit holder and for the payment of expenses for which funds are
not available, such of the Bonds in a list furnished by the Sponsors as the
Trustee in its sole discretion may deem necessary. In the event the Trustee does
not exercise the right to obtain Permanent Insurance on a Defaulted Bond or
Bonds in the Trust, to the extent that Bonds are sold which are current in
payment of principal and interest in order to meet redemption requests and
Defaulted Bonds are retained in the Trust in order to preserve the related
insurance protection applicable to said Bonds, the overall value of the Bonds
remaining in the Trust's Portfolio will tend to diminish. In the event the
Trustee does not exercise the right to obtain Permanent Insurance on a Defaulted
Bond or Bonds, except as described below and in certain other unusual
circumstances for which it is determined by the Trustee to be in the best
interests of the Unit holders or if there is no alternative, the Trustee is not
empowered to sell Defaulted Bonds for which value has been attributed for the
insurance obtained by the Trust. Because of such restrictions on the Trustee,
under certain circumstances the Sponsors may seek a full or partial suspension
of the right of Unit holders to redeem their Units. See "Rights of Unit
Holders--Redemption" in Part B. The Sponsors are empowered, but not obligated,
to direct the Trustee to dispose of Bonds in the event of advanced refunding.
It is the responsibility of the Sponsors to instruct the Trustee to reject
any offer made by an issuer of any of the Securities to issue new obligations in
exchange and substitution for any Securities pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to accept
such an offer or to take any other action with respect thereto as the Sponsors
may deem proper if the issuer is in default with respect to such Securities or
in the judgment of the Sponsors the issuer will probably default in respect to
such Securities in the foreseeable future.
Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Trust Agreement to the same
extent as Securities originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Securities,
the Trustee is required to give notice thereof to each Unit holder, identifying
the obligations eliminated and the Securities substituted therefor. Except
B-25
369165.1
<PAGE>
as stated in this and the preceding paragraph and in the discussion under "The
Trust--General Considerations" in Part B regarding the substitution of
Replacement Bonds for Failed Bonds, the acquisition by the Trust of any
securities other than the Securities initially deposited is prohibited.
If any default in the payment of principal or interest on any Bond occurs and
no provision for payment is made therefor either pursuant to the portfolio
insurance with respect to the Trust or otherwise within 30 days, the Trustee is
required to notify the Sponsors thereof. If the Sponsors fail to instruct the
Trustee to sell or to hold such Bond within 30 days after notification by the
Trustee to the Sponsors of such default, the Trustee may in its discretion sell
the defaulted Bond and not be liable for any depreciation or loss thereby
incurred. See "Insurance on the Bonds" in Part B.
The Sponsors may direct the Trustee to dispose of Bonds upon default in the
payment of principal or interest, institution of certain legal proceedings or
the existence of certain other impediments to the payment of Bonds, default
under other documents which may adversely affect debt service, default in the
payment of principal or interest on other obligations of the same issuer,
decline in projected income pledged for debt service on revenue Bonds, or
decline in price or the occurrence of other market factors, including advance
refunding, so that in the opinion of the Sponsors the retention of such Bonds in
the Trust would be detrimental to the interest of the Unit holders. The proceeds
from any such sales will be credited to the Principal Account for distribution
to the Unit holders.
Notwithstanding the foregoing, in connection with final distributions to Unit
holders, if the Trustee does not exercise the right to obtain Permanent
Insurance on any Defaulted Bond, because the portfolio insurance obtained by the
Trust is applicable only while Bonds so insured are held by the Trust, the price
to be received by the Trust upon the disposition of any such Defaulted Bond will
not reflect any value based on such insurance. Therefore, in connection with any
liquidation prior to December 31, 2045, with respect to the Trust, it shall not
be necessary for the Trustee to, and the Trustee does not currently intend to,
dispose of any Bonds if retention of such Bonds, until due, shall be deemed to
be in the best interest of Unit holders, including, but not limited to,
situations in which Bonds so insured are in default and situations in which
Bonds so insured have a deteriorated market price resulting from a significant
risk of default. Since the Pre-insured Bonds in the Trust will reflect the value
of the insurance obtained by the Bond issuer, it is the present intention of the
Sponsors not to direct the Trustee to hold any Pre-insured Bonds after the date
of termination. All proceeds received, less applicable expenses, from insurance
on Defaulted Bonds in the Trust not disposed of at the date of termination will
ultimately be distributed to Unit holders of record as of such date of
termination as soon as practicable after the date such Defaulted Bonds become
due and applicable insurance proceeds have been received by the Trustee (see
"Summary of Essential Financial Information").
Agent for Sponsors. The Sponsor named as Agent for Sponsors under "Summary of
Essential Financial Information" has been appointed by the other Sponsors as
agent for purposes of taking action under the Trust Agreement. If the Sponsors
are unable to agree with respect to action to be taken jointly by them under the
Trust Agreement and they cannot agree as to which Sponsor shall act as sole
Sponsor, then the Agent for Sponsors shall act as sole Sponsor. If one of the
Sponsors fails to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, that Sponsor is automatically discharged under the Trust Agreement
and the other Sponsors act as the Sponsors.
Resignation. Any Sponsor may resign at any time provided that at the time of
such resignation one remaining Sponsor maintains a net worth of $1,000,000 and
all the remaining Sponsors are agreeable to such resignation. Concurrent with or
subsequent to such resignation a new Sponsor may be appointed by the remaining
Sponsors and the Trustee to assume the duties of the resigning Sponsor. If, at
any time, only one Sponsor is acting under each Trust Agreement and that Sponsor
shall resign or fail to perform any of its duties thereunder or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may appoint a successor sponsor or terminate the
Trust Agreement and liquidate the Trust.
For financial information regarding the Sponsors see "Sponsors" in Part A.
B-26
369165.1
<PAGE>
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.
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 "Portfolio" in Part A.
Responsibility. For information relating to the responsibilities of the Trustee
under the Trust Agreement, reference is made to the material set forth under
"Rights of Unit Holders," "Sponsors--Responsibility" and "Sponsors--Resignation"
in this Part B.
Resignation. By executing an instrument in writing and filing the same with the
Sponsors, the Trustee and any successor may resign. In such an event the
Sponsors are obligated to appoint a successor trustee as soon as possible. If
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, or if the Sponsors deem it to be in the best
interest of the Unit holders, the Sponsors may remove the Trustee and appoint a
successor as provided in the Trust Agreement. Such resignation or removal shall
become effective upon the acceptance of appointment by the successor trustee.
If, upon resignation or removal of a trustee, no successor has been appointed
and has accepted the appointment within thirty days after notification, the
retiring trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The resignation or removal of a trustee becomes
effective only when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
EVALUATOR
Both during and after the initial offering period, the Evaluator shall be
Muller Data Corporation ("Muller Data"), a New York corporation with main
offices located at 395 Hudson Street, New York, New York 10014. Muller Data is a
wholly owned subsidiary of Thomson Publishing Corporation, a Delaware
corporation.
Limitations on Liability. The Trustee and the Sponsors may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Trust Agreement
shall be made in good faith upon the basis of the best information available to
it; provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsors or Unit holders for errors in judgement. But this
provision shall not protect the Evaluator in cases of its willful misconduct,
bad faith, gross negligence or reckless disregard of its obligations and duties.
Responsibility. The Trust Agreement requires the Evaluator to evaluate the
Securities on the basis of their bid prices on each business day after the
initial offering period, when any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsors. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their offering prices, see "Public
Offering--Offering Price" in Part B.
B-27
369165.1
<PAGE>
Resignation. The Evaluator may resign or may be removed by the Sponsors and the
Trustee, and the Sponsors and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor evaluator. If upon
resignation of the Evaluator no successor has accepted appointment within thirty
days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit holders when such an amendment is (1) to
cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interest of the Unit holders; and the Sponsors and the Trustee may
amend the Trust Agreement with the consent of the holders of Certificates
evidencing 66 2/3% of the Units then outstanding, provided that no such
amendment will reduce the interest in the Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units required to
consent to any such amendment without the consent of all the Unit holders. In no
event shall the Trust Agreement be amended to increase the number of Units
issuable thereunder or to permit the deposit or acquisition of securities either
in addition to or in substitution for any of the Bonds initially deposited in
the Trust, except in accordance with the provisions of each Trust Agreement. In
the event of any amendment, the Trustee is obligated to notify promptly all Unit
holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the Securities. The Trustee
shall notify all Unit holders when the value of the Trust as shown by any
evaluation is less than $2,000,000 or less than 20% of the value of the Trust as
of the date hereof, whichever is lower, at which time the Trust may be
terminated (i) by the consent of 66 2/3% of the Units or (ii) by the Trustee;
provided, however, that upon affirmative written notice to the Sponsors and the
holders at least 33 1/3% of the Units may instruct the Trustee not to terminate
the Trust. In no event, however, may the Trust continue beyond the Mandatory
Termination Date set forth in Part A; provided, however, that prior to such
date, the Trustee shall not dispose of any Bonds if the retention of such Bonds,
until due, shall be deemed to be in the best interest of the Unit holders. In
the event of termination, written notice thereof will be sent by the Trustee to
all Unit holders. Within a reasonable period after termination, the Trustee will
sell any remaining Securities, and, after paying all expenses and charges
incurred by the Trust, will distribute to each Unit holder, upon surrender for
cancellation of his certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters will be passed upon by Battle Fowler LLP, 75 East 55th
Street, New York, New York 10022, as special counsel for the Sponsors, and Kroll
& Tract, 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 auditors, as stated in
their report appearing herein, and has been so included in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
DESCRIPTION OF BOND RATINGS
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information or for other circumstances.
B-28
369165.1
<PAGE>
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA--Bonds rated AAA have the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC--Bonds rated BB, B, CCC and CC are regarded on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): to provide more detailed indications of credit
quality, the ratings from "AA" to "B" may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. Accordingly, the
investor should exercise 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-29
369165.1
<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.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Con. (. . .)--Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by: (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification
from "Aa" through "B" in its corporate rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
security ranks in the lower end of its generic rating category.
B-30
369165.1
<PAGE>
[This page intentionally left blank]
B-31
369165.1
<PAGE>
[This page intentionally left blank]
B-32
369165.1
<PAGE>
PROSPECTUS--Part C:
Note: Part C of this Prospectus may not be distributed unless accompanied by
Parts A and B.
Special Factors Affecting New York
The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
connection with the issuance of New York State and New York City municipal
bonds. The Sponsors have not independently verified this information.
Economic Trends. Over the long term, the State of New York
(the "State") and the City of New York (the "City") face serious potential
economic problems. The City accounts for approximately 41% of the State's
population and personal income, and the City's financial health affects the
State in numerous ways. The State historically has been one of the wealthiest
states in the nation. For decades, however, the State has grown more slowly than
the nation as a whole, gradually eroding its relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of generally less
affluent residents. Regionally, the older Northeast cities have suffered because
of the relative success that the South and the West have had in attracting
people and business. The City has also had to face greater competition as other
major cities have developed financial and business capabilities which make them
less dependent on the specialized services traditionally available almost
exclusively in the City.
The State has for many years had a very high State and local
tax burden relative to other states. The State and its localities have used
these taxes to develop and maintain their transportation networks, public
schools and colleges, public health systems, other social services and
recreational facilities. Despite these benefits, the burden of State and local
taxation, in combination with the many other causes of regional economic
dislocation, has contributed to the decisions of some businesses and individuals
to relocate outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and
its localities may take to encourage economic growth and achieve balanced
budgets, reductions in Federal spending could materially and adversely affect
the financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately
7.3 million, is an international center of business and culture. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. The City's manufacturing activity is conducted primarily in apparel
and printing.
The national economic downturn which began in July 1990
adversely affected the local economy, which had been declining since late 1989.
As a result, the City experienced job losses in 1990 and 1991 and real Gross
City Product ("GCP") fell in those two years. Beginning in calendar year 1992,
the improvement in the national economy helped stabilize conditions in the City.
Employment losses moderated toward year-end and real GCP increased, boosted by
strong wage gains. After noticeable improvements in the City's economy during
calendar year 1994, economic growth slowed in calendar year 1995, and the City's
current four-year financial plan assumes that moderate economic growth will
continue through calendar year 2000.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with generally
accepted accounting principles ("GAAP"). The City was required to close
368607.3
<PAGE>
substantial budget gaps in recent years in order to maintain balanced operating
results. There can be no assurance that the City will continue to maintain a
balanced budget as required by State law without additional tax or other revenue
increases or reductions in City services, which could adversely affect the
City's economic base.
Pursuant to the New York State Financial Emergency Act for the
City of New York, the City prepares an annual four-year financial plan, which is
reviewed and revised on a quarterly basis and which includes the City's capital,
revenue and expense projections and outlines proposed gap-closing programs for
years with projected budget gaps. The City's current four-year financial plan
projects substantial budget gaps for each of the 1998 through 2000 fiscal years.
The City is required to submit its financial plans to review bodies, including
the New York State Financial Control Board ("Control Board").
The City depends on State aid both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected or that State budgets in future fiscal years will be adopted
by the April 1 statutory deadline and that such reductions or delays will not
have adverse effects on the City's cash flow or expenditures. In addition, the
Federal Budget negotiation process could result in a reduction in or a delay in
the receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1997 through
2000 fiscal years (the "1997-2000 Financial Plan" or "Financial Plan"). The
City's projections set forth in the Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the condition
of the regional and local economies, the impact on real estate tax revenues of
the real estate market, wage increases for City employees consistent with those
assumed in the Financial Plan, employment growth, the results of a pending
actuarial audit of the City's pension system which is expected to significantly
increase the City's annual pension costs, the ability to implement proposed
reductions in City personnel and other cost reduction initiatives, which may
require in certain cases the cooperation of the City's municipal unions, the
ability of the New York City Health and Hospitals Corporation ("HHC") and the
Board of Education ("BOE") to take actions to offset reduced revenues, the
ability to complete revenue generating transactions and provision of State and
Federal aid and mandate relief and the impact on City revenues of proposals for
Federal and State welfare reform and any future legislation affecting Medicare
or other entitlements.
Implementation of the Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1997 through 2000 contemplates the issuance of $7.7
billion of general obligation bonds and $5.0 billion of bonds to be issued by
the proposed New York City Infrastructure Finance Authority ("Infrastructure
Finance Authority") to finance education and transportation projects. The
creation of Infrastructure Finance Authority, which is subject to the enactment
of State legislation, is being proposed by the Mayor and the Speaker of the City
Council as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. Depending on a number of factors, including whether the
Legislature is expected to enact legislation creating the Infrastructure Finance
Authority or to take other action that would provide relief under the general
debt limit, the City may find it necessary to curtail its currently defined
capital program before the end of fiscal year 1997 to ensure that there is
ongoing capacity to enter into capital contracts necessary to preserve projects
designed to safeguard health and safety in the City. Without the Infrastructure
Finance Authority or other legislative relief, the City's general obligation
financed capital program with
C-2
368607.3
<PAGE>
respect to new projects would be virtually brought to a halt during the
Financial Plan period. General obligation borrowing would continue to reimburse
the City's general fund for ongoing costs of existing contractual commitments.
In addition, the City issues revenue and tax anticipation notes to finance its
seasonal working capital requirements. The success of projected public sales of
City bonds and notes and Infrastructure Finance Authority bonds will be subject
to prevailing market conditions, and no assurance can be given that such sales
will be completed. If the City were unable to sell its general obligation bonds
and notes or bonds of the proposed Infrastructure Finance Authority, it would be
prevented from meeting its planned capital and operating expenditures. Future
developments concerning the City and public discussion of such developments, as
well as prevailing market conditions, may affect the market for outstanding City
general obligation bonds and notes.
On November 14, 1996, the City submitted to the Control Board
the Financial Plan for the 1997 through 2000 fiscal years, which relates to the
City, the BOE and the City University of New York ("CUNY"). The Financial Plan
is a modification to the financial plan submitted to the Control Board on June
21, 1996 (the "June Financial Plan").
The June Financial Plan identified actions to close a
previously projected gap of approximately $2.6 billion for the 1997 fiscal year.
The proposed actions in the June Financial Plan for the 1997 fiscal year
included (i) agency actions totaling $1.2 billion; (ii) a revised tax reduction
program which would increase projected tax revenues by $369 million due to the
four year extension of the 12.5% personal income tax surcharge and other
actions; (iii) savings resulting from cost containment in entitlement programs
to reduce City expenditures and additional proposed State aid of $75 million;
(iv) the assumed receipt of revenues relating to rent payments for the City's
airports, which are currently the subject of a dispute with the Port Authority
of New York and New Jersey (the "Port Authority"); (v) the sale of the City's
television station for $207 million; and (vi) pension costs savings totaling
$134 million resulting from a proposed increase in the earnings assumption for
pension assets from 8.5% to 8.75%.
The 1997-2000 Financial Plan published on November 14, 1996
reflects actual receipts and expenditures and changes in forecast revenues and
expenditures since the June Financial Plan. The 1997-2000 Financial Plan
projects revenues and expenditures for 1997 fiscal year balanced in accordance
with GAAP, and projects gaps of $1.2 billion, $2.1 billion and $3.0 billion for
the 1998, 1999 and 2000 fiscal years, respectively. Changes since the June
Financial Plan include (i) an increase in projected tax revenues of $450
million, $120 million, $50 million and $45 million in fiscal years 1997 through
2000, respectively; (ii) a delay in the assumed receipt of $304 million relating
to projected rent payments for the City airports from the 1997 fiscal year to
the 1998 and 1999 fiscal years, and a $34 million reduction in assumed State and
Federal aid for the 1997 Fiscal year; (iii) an approximately $200 million
increase in projected overtime and other expenditures in each of the fiscal
years 1997 through 2000; (iv) a $70 million increase in expenditures for BOE in
the 1997 fiscal year for school text books; (v) a reduction in projected pension
costs of $34 million, $50 million, $49 million and $47 million in fiscal years
1997 through 2000, respectively; and (vi) additional agency actions totaling
$179 million, $386 million, $473 million and $589 million in fiscal years 1997
through 2000, including personnel reductions through attrition and early
retirement.
The Financial Plan assumes (i) approval by the Governor and
the State Legislature of the extension of the 12.5% personal income tax
surcharge, which is projected to provide revenue of $170 million, $463 million,
$492 million, and $521 million, in the 1997 through 2000 fiscal years,
respectively; (ii) collection of the projected rent payments for the City's
airports, totalling $270 million and $180 million in the 1998 and 1999 fiscal
years, respectively, which may depend on the successful completion of
negotiations with the Port Authority or the enforcement of the City's rights
under the existing leases thereto through pending legal actions; (iii) the
ability of HHC and BOE to identify actions to offset substantial City and State
revenue reductions and the receipt by BOE of
C-3
368607.3
<PAGE>
additional State aid; (iv) State approval of the cost containment initiatives
and State aid proposed by the City; and (v) a reduction in City funding for
labor settlements for certain public authorities or corporations. Legislation
extending the 12.5% personal income tax surcharge beyond December 31, 1996, was
not enacted in the special legislative session held in December 1996. Such
legislation may be enacted in the 1997 State Legislative Session. The Financial
Plan does not reflect any increased costs which the City might incur as a result
of welfare legislation recently enacted by Congress or legislation proposed by
the Governor, which would, if enacted, implement such Federal welfare
legislation. In addition, the economic and financial condition of the City may
be affected by various financial, social, economic and political factors which
could have a material effect on the City.
In January 1997, the Mayor is expected to publish a
modification (the "January Modification") to the financial plan for the City's
1997 through 2001 fiscal years and a preliminary budget for the City's 1998
fiscal year. The January Modification will reflect changes since the Financial
Plan, including the City's program to address the currently forecast gap of
approximately $1.2 billion in the 1998 fiscal year.
The City's financial plans have been the subject of extensive
public comment and criticism. On July 16, 1996, the staff of the City
Comptroller issued a report on the June Financial Plan. The report concluded
that the City's fiscal situation remains serious, and that the City faces
budgetary risks of approximately $787 million to $941 million for the 1997
fiscal year, which increase to $4.16 billion to $4.31 billion for fiscal year
2000.
The projections for the 1997 through 2000 fiscal years reflect
the costs of the settlements with the United Federation of Teachers ("UFT") and
a coalition of unions headed by District Council 37 of the American Federation
of State, County and Municipal Employees, which together represent approximately
two-thirds of the City's workforce, and assume that the City will reach
agreement with its remaining municipal unions under terms which are generally
consistent with such settlements. The settlement provides for a wage freeze in
the first two years, followed by a cumulative effective wage increase of 11% by
the end of the five year period covered by the proposed agreements, ending in
fiscal years 2000 and 2001. Additional benefit increases would raise the total
cumulative effective increase to 13% above present costs. Costs associated with
similar settlements for all City- funded employees would total $49 million, $459
million and $1.2 billion in the 1997, 1998 and 1999 fiscal years, respectively,
and exceed $2 billion in each fiscal year after the 1999 fiscal year. There can
be no assurance that the City will reach an agreement with the unions that have
not yet reached a settlement with the City on the terms contained in the
Financial Plan.
In the event of a collective bargaining impasse, the terms of
wage settlements could be determined through statutory impasse procedures, which
can impose a binding settlement except in the case of collective bargaining with
the UFT, which may be subject to non-binding arbitration. On January 23, 1996,
the City requested the Office of Collective Bargaining to declare an impasse
against the Patrolmen's Benevolent Association and the Uniformed Firefighters
Association.
On July 10, 1995, Standard & Poor's revised downward its
rating on City general obligation bonds from A- to BBB+ and removed City bonds
from CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief, a
history of cash flow difficulties caused by State budget delays and continued
high debt levels.
C-4
368607.3
<PAGE>
On March 1, 1996, Moody's stated that the rating for City
general obligation bonds remains under review pending the outcome of the
adoption of the City's budget for the 1997 fiscal year, and, in light of the
status of the debate on public assistance and Medicaid reform; the enactment of
a State budget, upon which major assumptions regarding State aid are dependent,
which may be extensively delayed; and the seasoning of the City's economy with
regard to its strength and direction in the face of a potential national
economic slowdown. Since July 15, 1993, Fitch Investors Service, L.P. ("Fitch")
has rated City bonds A-. On February 28, 1996, Fitch placed the City's general
obligation bonds on FitchAlert with negative implications. On November 5, 1996,
Fitch removed the City's general obligation bonds from FitchAlert, although
Fitch stated that the outlook remains negative.
New York State and its Authorities. The State's current fiscal
year commenced on April 1, 1996, and ends on March 31, 1997, and is referred to
herein as the State's 1996-97 fiscal year. The State's budget for the 1996-97
fiscal year was enacted by the Legislature on July 13, 1996, more than three
months after the start of the fiscal year. The State Financial Plan for the
1996-97 fiscal year was formulated on July 25, 1996 and is based on the State's
budget as enacted by the Legislature and signed into law by the Governor, as
well as actual results for the first quarter of the current fiscal year. The
State's prior fiscal year commenced on April 1, 1995, and ended on March 31,
1996, and is referred to herein as the State's 1995-96 fiscal year.
The State closed projected budget gaps of $5.0 billion and
$3.9 billion for its 1995-96 and 1996-97 fiscal years, respectively. The 1997-98
gap was projected at $1.44 billion, based on the Governor's proposed budget of
December 1995. As a result of changes made in the enacted budget, that gap is
now expected to be larger. The gap, however, is not expected to be as large as
those faced in the prior two fiscal years. The Governor has indicated that he
will propose to close any potential imbalance primarily through General Fund
expenditure reductions and without increases in taxes or deferrals of scheduled
tax reductions.
The 1996-97 State Financial Plan is projected to be balanced
on a cash basis. As compared to the Governor's proposed budget as revised on
March 20, 1996, the State's adopted budget for 1996-97 increases General Fund
spending by $842 million, primarily from increases for education, special
education and higher education ($563 million). The balance represents funding
increases to a variety of other programs, including community projects and
increased assistance to fiscally distressed cities. Resources used to fund these
additional expenditures include $540 million in increased revenues projected for
1996-97 based on higher-than-projected tax collections during the first half of
calendar 1996, $110 million in projected receipts from a new State tax amnesty
program, and other resources including certain non-recurring resources. The
total amount of non-recurring resources included in the 1996-97 State budget is
projected by the State Division of the Budget ("DOB") to be $1.3 billion, or 3.9
percent of total General Fund receipts.
The State issued its first update to the cash-basis 1996-97
State Financial Plan (the "Mid-Year Update") on October 25, 1996. The Mid-Year
Update reflects a balanced 1996-97 State Financial Plan, with a reserve for
contingencies in the General Fund of $300 million. This reserve will be utilized
to help offset a variety of potential risks and other unexpected contingencies
that the State may face during the balance of the 1996-97 fiscal year.
The State Financial Plan is based on a June 1996 projection by
DOB of national and State economic activity. The national economy has resumed a
more robust rate of growth after a "soft landing" in 1995, with over 11 million
jobs added nationally since early 1992. The State economy has continued to
expand, but growth remains somewhat slower than in the nation. Although the
State has added approximately 240,000 jobs since late 1992, employment growth in
the State has been hindered during recent years by significant cutbacks in the
computer and
C-5
368607.3
<PAGE>
instrument manufacturing, utility, defense, and banking industries. Government
downsizing has also moderated these job gains.
In its Mid-Year Update the State revised its forecast of
national and State economic activity through the end of calendar year 1997 to
reflect the stronger-than-expected growth in the first half of 1996. The
national economic forecast has been changed slightly from the initial forecast
on which the original 1996-97 State Financial Plan was based. The revised
forecast projects real Gross Domestic Product growth in the nation of 2.5
percent for 1996 and 2.4 percent in 1997. The inflation rate is expected to be
3.0 percent in 1996 and 2.9 percent in 1997. The annual rate of job growth is
expected to slow gradually to about 1.8 percent in 1997, down from 2.2 percent
in 1996.
Growth in personal income and wages are expected to slow accordingly.
The State economic forecast has been changed slightly from the
one formulated with the July 1996- 97 State Financial Plan. Moderate growth is
projected to continue through the second half of 1996, with employment, wages
and incomes continuing their modest rise. Personal income is projected to
increase by 5.2 percent in 1996 and 4.7 percent in 1997, reflecting robust
projected wage growth fueled in part by financial sector bonus payments. Overall
employment growth will continue as a modest rate, reflecting the slowdown in the
national economy, continued spending restraint in government, and restructuring
in the health care and financial sectors.
The forecast for continued moderate growth, and any resultant
impact on the State's 1996-97 Financial Plan, contains some uncertainties.
Stronger-than-expected gains in employment could lead to a significant
improvement in consumption spending. Investments could also remain robust.
Conversely, the prospect of a continuing deadlock on federal budget deficit
reduction or fears of excessively rapid economic growth could create upward
pressures on interest rates. In addition, the State economic forecast could
over- or underestimate the level of future bonus payments or inflation growth,
resulting in forecasted average wage growth that could differ significantly from
actual growth. Similarly, the State forecast could fail to correctly account for
expected declines in government and banking employment and the direction of
employment change that is likely to accompany telecommunications deregulation.
The DOB believes that its projections of receipts and
disbursements relating to the current State Financial Plan, and the assumptions
on which they are based, are reasonable. Actual results, however, could differ
materially and adversely from the projections set forth below, and those
projections may be changed materially and adversely from time to time.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the Federal government,
that are not under the control of the State. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results that are worse than
predicted, with corresponding material and adverse effects on the State's
financial projections.
The General Fund is the principal operating fund of the State
and is used to account for all financial transactions, except those required to
be accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1996-97 fiscal year, the General Fund is expected to account for
approximately 47 percent of total governmental-fund receipts and 71 percent of
total governmental-fund disbursements. General Fund moneys are also transferred
to other funds, primarily to support certain capital projects and debt service
payments in other fund types.
C-6
368607.3
<PAGE>
The General Fund is projected to be balanced on a cash basis
for the 1996-97 fiscal year. Actual receipts through the first two quarters of
the 1996-96 State fiscal year reflect stronger-than-expected growth in most
taxes, with actual receipts exceeding expectations by $276 million. Based on the
revised economic outlook and actual receipts for the first six months of
1996-97, projected General Fund receipts for the 1996-97 State fiscal year have
been increased by $420 million. Most of this projected increase is in the yield
of the personal income tax ($241 million), with additional increases now
expected in business taxes ($124 million) and other tax receipts ($49 million).
Projected collections from user taxes and fees have been revised downward
slightly ($5 million). Revisions were also made to both miscellaneous receipts
and in transfers from other funds (an $11 million combined projected increase).
Disbursements through the first six months of the fiscal year
were $415 million less than projected, primarily because of delays in processing
payments following delayed enactment of the State budget. As a result, no
savings are included in the Mid-Year Update from this slower-than-expected
spending. Projections of 1996-97 General Fund disbursements are increased by
$120 million, since increased General Fund disbursements for education are
required to replace a projected decrease in lottery receipts. This modification
is shown in the form of an increased transfer of General Fund monies to the
Lottery Fund in the Special Revenue fund type. The projected closing fund
balance in the General Fund of $337 million reflects a balance of $252 million
in the Tax Stabilization Reserve Fund (following a payment of $15 million during
the current fiscal year) and a deposit of $85 million to the Contingency Reserve
Fund.
On January 13, 1992, Standard & Poor's reduced its ratings on
the State's general obligation bonds from A to A- and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. Standard & Poor's also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
Standard & Poor's revised the rating outlook assessment to stable. On February
14, 1994, Standard & Poor's raised its outlook to positive and, on August 5,
1996, confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings
on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On July 26, 1996, Moody's reconfirmed its A rating
on the State's general obligation long-term indebtedness.
Litigation. The court actions in which the State is a
defendant generally involve State programs and miscellaneous tort, real
property, and contract claims. While the ultimate outcome and fiscal impact, if
any, on the State of those proceedings and claims are not currently predictable,
adverse determinations in certain of them might have a material adverse effect
upon the State's ability to maintain a balanced 1996-97 State Financial Plan.
The claims involving the City other than routine litigation
incidental to the performance of their governmental and other functions and
certain other litigation arise out of alleged constitutional violations, torts,
breaches of contract and other violations of law and condemnation proceedings.
While the ultimate outcome and fiscal impact, if any, on the City of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the City's ability to
carry out the 1997- 2000 Financial Plan. The City has estimated that its
potential future liability on account of outstanding claims against it as of
June 30, 1996 amounted to approximately $2.8 billion.
Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations
and/or revenue bonds of issuers located in Puerto Rico which will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1995, approximately
C-7
368607.3
<PAGE>
89% of Puerto Rico's exports were to the United States mainland, which was also
the source of 65% of Puerto Rico's imports. In fiscal 1995, Puerto Rico
experienced a $4.6 billion positive adjusted trade balance. The economy of
Puerto Rico is dominated by the manufacturing and service sectors. The
manufacturing sector has experienced a basic change over the years as a result
of increased emphasis on higher wage, high technology industries such as
pharmaceuticals, electronics, computers, microprocessors, professional and
scientific instruments, and certain high technology machinery and equipment. The
service sector, including finance, insurance and real estate, wholesale and
retail trade, and hotel and related services, also plays a major role in the
economy. It ranks second only to manufacturing in contribution to the gross
domestic product and leads all sectors in providing employment. In recent years,
the service sector has experienced significant growth in response to and
paralleling the expansion of the manufacturing sector. Since fiscal 1985,
personal income, both aggregate and per capita, has increased consistently in
each fiscal year. In fiscal 1995, aggregate personal income was $27.0 billion
($22.5 billion in 1987 prices) and personal income per capita was $7,296 ($6,074
in 1987 prices). Personal income includes transfer payments to individuals in
Puerto Rico under various social programs. Total federal payments to Puerto
Rico, which include many types in addition to federal transfer payments, are
lower on a per capita basis in Puerto Rico than in any state. Transfer payments
to individuals in fiscal 1994 were $5.9 billion, of which $4.0 billion, or
67.6%, represent entitlement to individuals who had previously performed
services or made contributions under programs such as Social Security, Veterans
Benefits and Medicare. The number of persons employed in Puerto Rico during
fiscal 1996 averaged 1,092,300, an increase of 3.9% over fiscal 1995. The
unemployment rate in Puerto Rico for fiscal 1996 remained the same. The Puerto
Rico Planning Board's most recent gross product forecast for fiscal 1997, made
in February 1996, showed an increase of 2.7%. The Planning Board's Economic
Activity Index, a composite index for thirteen economic indicators, increased
1.6% for fiscal 1996 compared to fiscal 1995, and 2.0% for fiscal 1995, compared
to fiscal 1994. During the first three months of fiscal 1997 the Index decreased
0.9% compared to the same period in fiscal 1996, which period showed an increase
of 1.7% over the same period of fiscal 1995. Growth in the Puerto Rico economy
in fiscal 1997 depends on several factors, including the state of the United
States economy and the relative stability in the price of oil imports, the
exchange value of the U.S. dollar, the level of federal transfers and the cost
of borrowing.
C-8
368607.3
<PAGE>
PART II--ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM A--BONDING ARRANGEMENTS
The employees of Glickenhaus & Co. and Lebenthal & Co., Inc. are covered
under Brokers' Blanket Policy, Standard Form 14, in the respective amounts of
$5,000,000 and $10,000,000.
ITEM B--CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers
and documents: The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus consisting of pages.
Undertakings.
Signatures.
Written consents of the following persons: Battle Fowler LLP
(included in Exhibit 99.3.1) BDO Seidman, LLP Muller Data
Corporation (included in Exhibit 99.5.1)
The following exhibits:
*99.1.1 -- Reference Trust Agreement including certain Amendments to the
Trust Indenture and Agreement referred to under Exhibit
99.1.1 below.
99.1.1.1 -- Trust Indenture and Agreement (filed as Exhibit 1.1.1 to
Amendment No. 1 to Form S-6 Registration Statement No.
33-33746 of Empire State Municipal Exempt Trust, Guaranteed
Series 66 on December 18, 1990, and incorporated herein by
reference).
99.1.3 -- Form of Agreement Among Underwriters and Selected Dealers
Agreement (filed as Exhibit 1.8 to Amendment No. 1 to Form
S-6 Registration Statement No. 33-28268 of Empire State
Municipal Exempt Trust, Guaranteed Series 49 on July 18,
1989, and incorporated herein by reference).
99.1.6 -- Restated Agreement of Limited Partnership of Glickenhaus &
Co. (filed as Exhibit 1.3 to Form S-6 Registration Statement
No. 2-95041 of Municipal Insured National Trust Series 1 on
December 21, 1984, and incorporated herein by reference).
99.1.6(a) -- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(a) to
Form S-6 Registration Statement No. 2-95041 of Municipal
Insured National Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
99.1.6(b) -- Certificate of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(b) to
Form S-6 Registration Statement No. 2-95041 of Municipal
Insured National Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
- --------
* Filed herewith.
II-i
396037.1
<PAGE>
99.1.6(c) -- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(c) to
Form S-6 Registration Statement No. 2-95041 of Municipal
Insured National Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
99.1.6(d) -- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.2(d) to
Amendment No. 1 to Form S-6 Registration Statement No. 33-814
of Empire State Municipal Exempt Trust, Guaranteed Series 23
on April 11, 1986, and incorporated herein by reference).
99.1.6(e) -- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(e) to
Amendment No. 1 to Form S-6 Registration Statement No.
33-52058 of MINT Group 8 on November 18, 1992, and
incorporated herein by reference).
99.1.6(f) -- Agreement of Amendment to Restated Agreement of Limited
Partnership of Glickenhaus & Co. (filed as Exhibit 1.3(e) to
Amendment No. 1 to Form S-6 Registration Statement No.
33-78036 of MINT Group 11 on May 3, 1994, and incorporated
herein by reference).
99.1.6.1 -- Certificate of Incorporation of Lebenthal & Co., Inc. as
amended (filed as Exhibit 1.5 to Form S-6 Registration
Statement No. 2-95041 of Municipal Insured National Trust
Series 1 on December 21, 1984, and incorporated herein by
reference.)
99.1.6.2 -- By-Laws of Lebenthal & Co., Inc. (filed as Exhibit 1.5 to
Amendment No. 1 to Form S-6 Registration Statement No.
33-22568 of Empire State Municipal Exempt Trust, Guaranteed
Series 39 on August 9, 1988, and incorporated herein by
reference).
*99.1.7 -- Form of Insurance Policy obtained by the Trust.
99.1.7(a) -- Master Letter Agreement of Municipal Bond Investors Assurance
Corporation (filed as Exhibit 1.7(a) to Amendment No. 1 to
Form S-6 Registration Statement No. 33-35124 of Empire State
Municipal Exempt Trust, Guaranteed Series 59 on July 1, 1990,
and incorporated herein by reference).
99.1.7(b) -- Form of Permanent Insurance Policy of Municipal Bond
Investors Assurance Corporation (filed as Exhibit 1.7.1 to
Amendment No. 1 to Form S-6 Registration Statement No.
33-10860 of Empire State Municipal Exempt Trust, Guaranteed
Series 31 on June 10, 1987, and incorporated herein by
reference).
99.2.1 -- Form of Certificate (filed as Exhibit 2.1 to Amendment No. 1
to Form S-6 Registration Statement No. 33-33746 of Empire
State Municipal Exempt Trust, Guaranteed Series 66 on
December 18, 1990, and incorporated herein by reference).
*99.3.1 -- Opinion of Battle Fowler LLP as to the legality of the
securities being registered.
99.4.1 -- Information as to Partners of Glickenhaus & Co. (filed as
Exhibit 4.1 to Amendment No. 1 to Form S-6 Registration
Statement No. 33-26577 of Empire State Municipal Exempt
Trust, Guaranteed Series 46 on April 19, 1989, and
incorporated herein by reference).
- --------
* Filed herewith.
II-ii
396037.1
<PAGE>
99.4.2 -- Information as to Officers and Directors of Lebenthal & Co.,
Inc. (filed as Exhibit 4.2 to Amendment No. 1 to Form S-6
Registration Statement No. 33-22568 of Empire State Municipal
Exempt Trust, Guaranteed Series 39 on August 9, 1988, and
incorporated herein by reference).
99.4.3 -- Affiliations of Sponsors with other investment companies
(filed as Exhibit 4.6 to Amendment No. 1 to Form S-6
Registration Statement No. 2-95041 of Municipal Insured
National Trust Series 1 on March 21, 1985, and incorporated
herein by reference).
99.4.4 -- Stockbrokers' Bond and Policy, Form B for Glickenhaus &
Co. (filed as Exhibit 4.7 to Form S-6 Registration Statement
No. 2-95041 of Municipal Insured National Trust Series 1 on
December 21, 1984, and incorporated herein by reference).
99.4.5 -- Stockbrokers' Blanket Bond Policy, Standard Form No. 14 for
Lebenthal & Co., Inc. (filed as Exhibit 4.9 to Form S-6
Registration Statement No. 2-95041 of Municipal Insured
National Trust Series 1 on December 21, 1984, and
incorporated herein by reference).
*99.5.1 -- Consent To Be Evaluator of Muller Data Corporation and
Affirmation Letter of Standard & Poor's Corporation.
*99.5.2 -- Affirmation Letter of Moody's Investors Service.
99.6.1 -- Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to Form S-6
Registration Statement No. 33-64155 of Glickenhaus Value
Portfolios, The 1996 Equity Collection on November 13, 1995,
and incorporated herein by reference).
99.6.2 -- Copies of Powers of Attorney of Directors and certain
officers of Lebenthal & Co., Inc. (filed as Exhibit 6.2 to
Amendment No. 1 to Form S-6 Registration Statement No.
33-55385 of Empire State Municipal Exempt Trust, Guaranteed
Series 109 on November 2, 1994, and incorporated herein by
reference).
*27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Filed herewith.
II-iii
396037.1
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
SIGNATURES
The registrant hereby identifies Empire State Municipal Exempt
Trust, Guaranteed Series 55 for the purposes of the representations required by
Rule 487 and represents the following:
1) That the portfolio securities deposited in the Series as to
the securities of which this registration statement is being
filed do not differ materially in type or quality from those
deposited in such previous series;
2) That, except to the extent necessary to identify the specific
portfolio securities deposited in, and to provide essential
financial information for, the Series with respect to the
securities of which this registration statement is being
filed, this registration statement does not contain
disclosures that differ in any material respect from those
contained in the registration statements for such previous
Series as to which the effective date was determined by the
commission or the staff; and
3) That it has complied with Rule 460 under the Securities Act
of 1933.
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Empire State Municipal Exempt Trust, Guaranteed Series 133 has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, hereunto duly authorized, in the City of New York and State
of New York on the 30th day of January, 1997.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 133
By: GLICKENHAUS & CO.
(Sponsor)
By: /S/ JAMES VACCACIO
(James Vaccacio, Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
NAME TITLE DATE
ALFRED FEINMAN* General Partner
(Alfred Feinman)
SETH M. GLICKENHAUS* General Partner,
(Seth M. Glickenhaus) Chief Investment Officer
STEVEN B. GREEN* Chief Financial Officer
(Steven B. Green)
*By: /S/ JAMES VACCACIO January 30, 1997
----------------------------------------
(James Vaccacio, Attorney-in-Fact)
- --------
* Executed copies of powers of attorney were filed as Exhibit 6.1 to
Registration Statement No. 33-64155 on November 13, 1995.
II-iv
396037.1
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
SIGNATURES
The registrant hereby identifies Empire State Municipal Exempt
Trust, Guaranteed Series 55 for the purposes of the representations required by
Rule 487 and represents the following:
1) That the portfolio securities deposited in the Series as to
the securities of which this registration statement is being
filed do not differ materially in type or quality from those
deposited in such previous series;
2) That, except to the extent necessary to identify the specific
portfolio securities deposited in, and to provide essential
financial information for, the Series with respect to the
securities of which this registration statement is being
filed, this registration statement does not contain
disclosures that differ in any material respect from those
contained in the registration statements for such previous
Series as to which the effective date was determined by the
commission or the staff; and
3) That it has complied with Rule 460 under the Securities Act
of 1933.
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Empire State Municipal Exempt Trust, Guaranteed Series 133 has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, in the City of New York and State
of New York on the 30th day of January, 1997.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 133
By: LEBENTHAL & CO., INC.
(Sponsor)
By: /s/ D. WARREN KAUFMAN
(D. Warren Kaufman, Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
H. GERARD BISSINGER, II* Director
(H. Gerard Bissinger, II)
JEFFREY M. JAMES* Director
(Jeffrey M. James)
/s/ D. WARREN KAUFMAN* Director January 30, 1997
- ------------------------------------
(D. Warren Kaufman)
ALEXANDRA LEBENTHAL* Director, President
(Alexandra Lebenthal)
JAMES A. LEBENTHAL* Director, Chief Executive Officer
(James A. Lebenthal)
DUNCAN K. SMITH* Director
(Duncan K. Smith)
*By: /s/ D. WARREN KAUFMAN January 30, 1997
(D. Warren Kaufman, Attorney-In-Fact)
</TABLE>
- --------
* An executed copy of the power of attorney was filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2, 1994.
II-v
396037.1
<PAGE>
CONSENT OF COUNSEL
The consent of counsel to the use of their name in the Prospectus included in
this Registration Statement is contained in their opinion filed as Exhibit
99.3.1 to this Registration Statement.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of Empire State Municipal Exempt Trust,
Guaranteed Series 133
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement No. 333-17301 of our report dated January 30, 1997, relating to the
Statement of Condition of Empire State Municipal Exempt Trust, Guaranteed Series
133 and to the reference to our firm under the heading "Auditors" in the
Prospectus which is a part of such Registration Statement.
BDO SEIDMAN, LLP
New York, New York
January 30, 1997
II-vi
396037.1
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 133
REFERENCE TRUST AGREEMENT
This Reference Trust Agreement dated January 30, 1997 among
Glickenhaus & Co. and Lebenthal & Co., Inc., as Depositors, The Bank of New
York, as Trustee and Muller Data Corporation, as Evaluator, sets forth certain
provisions in full and incorporates other provisions by reference to the
document entitled "Empire State Municipal Exempt Trust, Guaranteed Series 66,
Trust Indenture and Agreement" dated December 18, 1990 as amended in part by
this Reference Trust Agreement (herein as amended or supplemented called the
"Indenture"). This Reference Trust Agreement and the Indenture, as
incorporated by reference herein, will constitute a single instrument.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements
herein contained, the Depositors, the Trustee, and the Evaluator agree as
follows:
Part I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the provisions
contained in the Indenture are herein incorporated by reference in their
entirety and shall be deemed to be a part of this instrument as fully and to
the same extent as though said provisions had been set forth in full in this
instrument except that for all purposes of this Empire State Municipal Exempt
Trust, Guaranteed Series 131, and all subsequent Series, the following
sections of the Indenture are amended as follows:
(a) Section 1.1(9) is hereby amended by deleting the words
"Standard and Poor's Corporation" therein and substituting the words "Muller
Data Corporation" in place thereof.
295222.1
<PAGE>
(b) Section 3.1 is hereby amended by revising it in
its entirety to read as follows:
Section 3.1. Initial Cost. The cost of the initial preparation,
printing and execution of the Certificates and this Indenture,
Registration Statement and other documents relating to the Trust,
Federal and State registration fees and costs, the initial fees
and expenses of the Trustee and Evaluator, legal and auditing
expenses and other out-of-pocket expenses (excluding expenses
incurred in the preparation and printing of preliminary
prospectuses and prospectuses, expenses incurred in the
preparation and printing of brochures and other advertising
materials and any other selling expenses), to the extent not borne
by the Depositors, shall be paid by the Trust; provided, however,
the Trust shall not bear such expenses in excess of the amount
shown in the Statement of Condition included in the Prospectus,
and any such excess shall be borne by the Depositors. To the
extent the funds in the Interest and Principal Accounts of the
Trust shall be insufficient to pay the expenses borne by the Trust
specified in this Section 3.1, the Trustee shall advance out of
its own funds and cause to be deposited and credited to the
Interest Account such amount as may be required to permit payment
of such expenses. The Trustee shall be reimbursed for such advance
in the manner provided in Section 3.5, and the provisions of
Section 6.4 with respect to the reimbursement of disbursements for
Trust expenses, including, without limitation, the lien in favor
of the Trustee therefor, shall apply to the payment of expenses
made pursuant to this Section. For purposes of calculation of
distributions under Section 3.5 and the addition provided in
clause (4) of Section 5.1, the expenses borne by the Trust
pursuant to this Section shall be deemed to accrue at a daily rate
over the time period specified for their amortization provided in
the Prospectus; provided, however, that nothing herein shall be
deemed to prevent, and the Trustee shall be entitled to, full
reimbursement for any advances made pursuant to this Section no
later than the termination of the Trust.
(c) Section 5.1 is hereby amended by revising the second sentence
thereof to read as follows:
Such evaluations shall take into account and itemize separately
(1) the cash on hand in the Trust Fund (other than cash declared
held specially for purchase of Contract Bonds under Section 3.14
hereof or cash credited to the Reserve Account) or moneys in the
-2-
295222.1
<PAGE>
process of being collected from matured interest coupons or bonds
matured or called for redemption prior to maturity, (2) the value
of each issue of the Bonds (including Contract Bonds) on the bid
side of the market as determined by the Evaluator pursuant to
Section 4.1, (3) interest accrued thereon not subject to
collection and distribution, and (4) amounts representing
organizational expenses paid less amounts representing secured
organizational expenses of the Trust.
Part II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The interest-bearing obligations listed in the Prospectus for
Empire State Municipal Exempt Trust Guaranteed Series 133 have been deposited
in trust under this Indenture (see "Portfolio" in Part A of the Prospectus
which for purposes of this Indenture is the Schedule of Securities or Schedule
A).
(b) For the purposes of the definition of the Unit in item (28) of
Section 1.1, the fractional undivided interest in and ownership of the Trust
is 10,000.
(c) The fiscal year for the Trust shall end on September 30th of
each year.
(d) All Certificateholders of record on February 15, 1997 (the
"First Monthly Record Date") who have selected the monthly distribution plan,
will receive a distribution to be made on or shortly after March 1, 1997
(the "First Distribution Date"), and thereafter distributions will be made
monthly. The first semi-annual distribution will be made on or shortly after
June 1, 1997 to all Certificateholders of record on May 15, 1997 who
have selected the semi-annual distribution plan, and thereafter distributions
will be made semi-annually.
(e) The First Settlement Date shall mean February 4, 1997.
(f) The number of Units referred to in Section 2.3 is
10,000.
-3-
295222.1
<PAGE>
(g) For the purposes of Section 4.3, the Evaluator shall receive
for each evaluation of the Bonds in the Trust $.55 per Bond for each
valuation.
(h) For purposes of Section 6.4, the Trustee shall be
paid per annum $1.39 per $1,000 principal amount of Bonds for
that portion of the Trust under the monthly distribution plan and $.99 per
$1,000 principal amount of Bonds for that portion of the Trust under the
semi-annual distribution plan.
(i) For purposes of Section 8.6, the Depositors' maximum annual
fee is hereby specified to be $0.25 per $1,000 principal amount of Bonds in
the Trust.
(j) For purposes of Section 9.2, the Mandatory Termination Date
for the Trust is December 31, 2046.
(k) For purposes of this Series of Empire State Municipal Exempt
Trust, the form of Certificate set forth in this Indenture shall be
appropriately modified to reflect the title of this Series as set forth above.
(l) For purposes of this Series of Empire State Municipal Exempt
Trust, the execution date of this Indenture shall be the date first written
above.
IN WITNESS WHEREOF, the parties hereto have caused this Reference
Trust Agreement to be duly executed on the date first above written.
[Signatures on separate pages]
-4-
295222.1
<PAGE>
GLICKENHAUS & CO.
By /s/ James Vaccacio
Attorney-in-Fact
for each of the
General Partners
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, Kelly McConvery, a Notary Public in and for the said County in the State
aforesaid, do hereby certify that James Vaccacio, personally known to me to be
the same whose name is subscribed to the foregoing instrument, appeared before
me this day in person, and acknowledged that he signed and delivered the said
instrument as his free and voluntary act as Attorney-in-Fact for each of the
General Partners, and as the free and voluntary act of said GLICKENHAUS & CO.,
for the uses and purposes therein set forth.
GIVEN, under my hand and notarial seal this 30th day of January, 1997.
/s/ Kelly McConvery
Notary Public
KELLY McCONVERY
Notary Public, State of New York
No. 01MC5044884
Qualified in New York County
Commission Expires June 5, 1997
[SEAL]
313665.1
<PAGE>
Lebenthal & Co., Inc.
By: /s/James McGrath
Authorized Officer
ATTEST:
By: /s/D. Warren Kaufman
Secretary
[CORPORATE SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, Kelly McConvery, a Notary Public in and for the said County in
the State aforesaid, do hereby certify that James McGrath and D. Warren
Kaufman personally known to me to be the same persons whose names are
subscribed to the foregoing instrument and personally known to me to be the
Authorized Officer and Secretary, respectively, of LEBENTHAL & CO., INC.,
appeared before me this day in person, and acknowledged that they signed,
sealed with the corporate seal of LEBENTHAL & CO., INC., and delivered the
said instrument as their free and voluntary act as such Authorized Officer and
Secretary, respectively, and as the free and voluntary act of said LEBENTHAL &
CO., INC., for the uses and purposes therein set forth.
GIVEN, under my hand and notarial seal this 28th day of January,
1997.
/s/ Kelly McConvery
Notary Public
KELLY McCONVERY
Notary Public, State of New York
No. 01MC5044884
Qualified in New York County
Commission Expires June 5, 1997
[SEAL]
313665.1
<PAGE>
THE BANK OF NEW YORK, Trustee
By: /s/ Jeffrey Cohen
Vice President
ATTEST:
By: /s/ Jenifer Dicker
(CORPORATE SEAL)
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
I, Emanuel T. Lytle, Jr., a Notary Public in and for the said County in
the State aforesaid, do hereby certify that Jeffrey Cohen and Jenifer Dicker,
personally known to me to be the same persons whose names are subscribed to the
foregoing instrument and personally known to me to be a Vice President and
Assistant Vice President, respectively, of The Bank of New York, appeared
before me this day in person, and acknowledge that they signed, sealed with the
corporate seal of The Bank of New York and delivered the said instrument as
their free and voluntary act as such Vice President and Assistant Vice
President, respectively, and as the free and voluntary act of said The Bank of
New York for the uses and purposes therein set forth.
GIVEN, under my hand and notarial seal this 28th day of January, 1997.
/s/ Emanuel T. Lytle, Jr.
Notary Public
EMANUEL T. LYTLE, JR.
Notary Public, State of New York
No. 41-4696933
Qualified in Queens County
Commission Expires April 30, 1997
[SEAL]
My commission expires:
313665.1
<PAGE>
MULLER DATA CORPORATION, Evaluator
By: /s/Mario S. Buscemi
Mario S. Buscemi
Chief Operating Officer
[Seal]
ATTEST:
By: /s/ Richard Birnbaum
Vice President
313665.1
<PAGE>
C/M: 10726.0073 405103.1
<PAGE>
EXHIBIT 99.1.7
MBIA
FINANCIAL GUARANTY MASTER
WHILE IN TRUST WITH A PERMANENT OPTION
UNIT INVESTMENT TRUST INSURANCE POLICY
MBIA Insurance Corporation
Armonk, New York 10504
Policy No. ESGT-133-1010
MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of
the premium and subject to the terms of this policy, hereby unconditionally and
irrevocably guarantees to the Trust, as hereinafter defined, the full and
complete payment required to be made by or on behalf of the issuer(s) to the
applicable Paying Agent(s) or its/their successor(s) (the "Paying Agent") of an
amount equal to (i) the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the obligations described in Exhibit A attached hereto (referred to
herein as the "Obligations"), as such payments shall become due but shall not be
so paid (except that in the event of any acceleration of the due date of such
principal by reason of mandatory or optional redemption or acceleration
resulting from default or otherwise, other than any advancement of maturity
pursuant to a mandatory sinking fund payment, the payments guaranteed hereby
shall be made in such amounts and at such times as such payments of principal
would have been due had there not been any such acceleration); and (ii) the
reimbursement of any such payment which is subsequently recovered from the Trust
pursuant to a final judgment by a court of competent jurisdiction that such
payment constitutes an avoidable preference to the Trust within the meaning of
any applicable bankruptcy law. The amounts referred to in clauses (i) and (ii)
of the preceding sentence shall be referred to herein collectively as the
"Insured Amounts."
Upon receipt of telephonic or telegraphic notice, such notice subsequently
confirmed in writing by registered or certified mail, or upon receipt of written
notice by registered or certified mail, by the Insurer or its designee from the
Paying Agent or the Trust, that required payment of any Insured Amount has not
been made, the Insurer on the due date of such payment or within one business
day after receipt of notice of such nonpayment, whichever is later, will make a
deposit of funds, in an account with State Street Bank and Trust Company, N.A.,
in New York, New York, or its successor, sufficient for the payment of any such
Insured Amounts which are then due. Upon presentment and surrender of such
Obligations or coupons or presentment of such other proof of ownership of the
Obligations registered as to principal or as to principal and interest, together
with evidence satisfactory to State Street Bank and Trust Company, N.A. that (i)
in the case of Pre-Insured Obligations, as hereinafter defined, that demand for
payment has been made from the other insurer, and (ii) in all cases, that such
Obligations or coupons are the Obligations or coupons described in this policy
or replacements or successors thereto, and any appropriate instruments of
assignment to evidence the assignment of the Insured Amounts due on the
Obligations as are paid by the Insurer, and appropriate instruments to effect
the appointment of the Insurer as agent for the Trust in any legal proceeding
related to payment of Insured Amounts on the Obligations or coupons, such
instruments being in a form satisfactory to State Street Bank and Trust Company,
N.A, State Street Bank and Trust Company, N.A. shall disburse to the Trust or
the Paying Agent making such presentment and/or surrender payment of the Insured
Amounts due on such Obligations and coupons, less any amount held by the Paying
Agent for the payment of such Insured Amounts and legally available therefor.
This policy does not insure against loss of any prepayment premium which may at
any time be payable with respect to any Obligation or coupon.
The term "Depositor" shall mean Glickenhaus & Co and Lebenthal &
Co., Inc. and its successors or any successor Depositor.
The term "Pre-Insured Obligations" shall mean obligations, if
any, on which the payment of principal of and/or interest on shall have been
insured prior to the issuance of this policy by an insurer other than the
Insurer.
The term "Trust" shall mean the Empire State Municipal Exempt Trust, Guaranteed
Series 133, created pursuant to the Trust Indenture and Agreement dated
December 18, 1990 among the Depositor, the Trustee and Standard & Poor's
Corporation as supplemented and amended by the Reference Trust Agreement dated
as of January 30, 1997, among the Depositor, the Trustee and Muller Data
Corporation.
The term "Trustee" shall mean The Bank of New York, or any
successor trustee or co-trustee.
Any service of process on the Insurer may be made to the Insurer
at its offices located at 113 King Street, Armonk, New York 10504, and such
service of process shall be valid and binding.
<PAGE>
This policy shall only apply to Obligations held in and owned by
the Trust and shall not apply to any Obligations not deposited therein by the
Depositor. This policy shall continue in force only with respect to
Obligations held in and owned by the Trust, and, subject to the provisions of
this paragraph, the Insurer shall not have any liability under this policy
with respect to any Obligations which do not constitute part of the Trust.
This policy is non-cancellable during the term hereof for any reason, but
shall terminate as to any Obligation which has been redeemed from or sold by
the Trustee or the Trust on the date of such redemption or on the settlement
date of such sale, and the Insurer shall not have any liability under this
policy as to any such Obligation thereafter. If the date of such redemption
or the settlement date of such sale occurs between a record date and a date of
payment of any such Obligation, this policy shall terminate as to such
Obligation on the business day next succeeding such date of payment.
Notwithstanding the foregoing provisions of this paragraph, the termination of
this policy as to any Obligation shall not affect the obligations of the
Insurer regarding any other Obligation in the Trust. This policy shall
terminate as to all Obligations on the date on which the last of the
Obligations mature, are redeemed or are sold by the Trust.
The premium on this policy is not refundable for any reason,
including the payment prior to maturity of the Obligations.
This policy is issued only to the Trust and is nontransferable.
This policy shall be governed by and construed under the laws of
the State of New York.
This Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
IN WITNESS WHEREOF, the Insurer has caused this policy to be
executed in facsimile on its behalf by its President and its Assistant
Secretary, this 30th day of January, 1997. .
MBIA INSURANCE CORPORATION
Richard Weill
President
Frederick B. Hnat
Assistant Secretary
<PAGE>
MBIA
E N D O R S E M E N T
Attached to Policy No. ESGT-133-1010
issued by MBIA Insurance Corporation (the "Insurer"), to the Trust, as defined
in the policy issued with respect to the small issue industrial development
bonds and pollution control revenue bonds listed in Exhibit A (the "Bonds").
It is further understood that this policy shall guarantee to the Trust, as
defined in the policy, the full and complete payments required to be made by
or on behalf of the Issuer if there occurs pursuant to the terms of the Bonds
an event which results in the loss of the tax exempt status of the interest on
the Bonds, including any principal, interest or premium payments payable
thereon, if any, as and when thereby required.
This endorsement forms a part of the policy to which it is attached, effective
on the inception date of the policy.
IN WITNESS WHEREOF, the Insurer has caused this endorsement to be executed in
facsimile on its behalf by its President and its Assistant Secretary
this 30th day of January, 1997.
MBIA INSURANCE CORPORATION
Richard Weill
President
Frederick B. Hnat
Assistant Secretary
<PAGE>
MBIA
CERTIFICATE OF MBIA INSURANCE CORPORATION
(EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 133)
This Certificate is being delivered in connection with the
issuance by MBIA Insurance Corporation (the "Corporation")
of a Municipal Bond Guaranty Insurance Policy relating to EMPIRE STATE MUNICIPAL
EXEMPT TRUST, GUARANTEED SERIES 133 (the "Policy"). The undersigned, hereby
certifies that she is qualified and acting as an Assistant Secretary of
the Corporation.
The undersigned hereby certifies that:
(a) The Policy has been duly executed, is a valid and binding
obligation of the Corporation enforceable in accordance with
its terms except that the enforcement of the Policy may be
limited by laws relating to bankruptcy, insolvency,
reorganization, moratorium, receivership and other similar
laws affecting creditors' rights generally and by general
principles of equity;
(b) The information concerning the Corporation and its policy or
policies as set forth in the prospectus of the Trust filed as
part of a Registration Statement dated January 30, 1997 under
the caption entitled "The Trust -- Insurance on the Bonds,"
regarding Empire State Municipal Exempt Trust, Guaranteed
Series 133, is accurate; and
(c) The financial information as of September 30, 1996 for the
Corporation supplied to the Sponsors is true and correct
financial information provided to the New York Insurance
Department in connection with the licensing of the
Corporation, and such financial information is the most
recent financial information available.
IN WITNESS WHEREOF, the undersigned has herewith set her hand and
caused her signature to be affixed hereto on this 30th day of January, 1997..
By
Anne McKenna
Assistant Secretary
January 30, 1997
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271-0005
Re: Empire State Municipal Exempt Trust,
Guaranteed Series 133
Dear Sirs:
We have acted as special counsel for Glickenhaus & Co. and
Lebenthal & Co., Inc., as Depositors, Sponsors and Principal Underwriters
(collectively, the "Depositors") of Empire State Municipal Exempt Trust,
Guaranteed Series 133 (the "Trust") in connection with the issuance by the
Trust of 10,000 units of fractional undivided interest (collectively, the
"Units") in the Trust. Pursuant to the Trust Agreement referred to below, the
Depositors have transferred to the Trust certain long-term bonds and contracts
to purchase certain long-term bonds together with an irrevocable letter of
credit to be held by the Trustee upon the terms and conditions set forth in
the Trust Agreement. (All bonds to be acquired by the Trust are collectively
referred to as the "Bonds").
In connection with our representation, we have examined copies of
the following documents relating to the creation of the Trust and the issuance
and sale of the Units: (a) the Trust Indenture and Agreement and related
Reference Trust Agreement, each of even date herewith, relating to the Trust
(the "Trust Agreements") among the Depositors, the Bank of New York, as
Trustee, and Muller Data Corporation, as Evaluator; (b) the notification of
registration on Form N-8A and the Registration Statement on
207440.1
2
<PAGE>
Glickenhaus & Co.
January 30, 1997
Form N-8B-2, as amended, relating to the Trust, as filed with the Securities
and Exchange Commission (the "Commission") pursuant to the Investment Company
Act of 1940 (the "1940 Act"); (c) the Registration Statement on Form S-6
(Registration No. 333-17301) filed with the Commission pursuant to the
Securities Act of 1933 (the "1933 Act"), and Amendment No. 1 thereto (said
Registration Statement, as amended by said Amendment No. 1, being herein
called the "Registration Statement"); (d) the proposed form of final
Prospectus (the "Prospectus") relating to the Units, which is expected to be
filed with the Commission this day; (e) certified resolutions of Lebenthal &
Co. Inc., authorizing the execution and delivery by it of the Trust Agreements
and the consummation of the transactions contemplated thereby; (f) the
Certificate of Incorporation and By-Laws of Lebenthal & Co., Inc. and the
Restated Agreement of Limited Partnership of Glickenhaus & Co.; and (g) a
certificate of an authorized officer or partner of each of the Depositors with
respect to certain factual matters contained therein.
We have also examined the applications for orders of exemption
from certain provisions of the 1940 Act, and the amendments thereto, filed
with the Commission on May 23, 1978 (file no. 812-4315), on November 7, 1978
(file no. 812-4389), on September 10, 1980 (file no. 812-4334) and on November
9, 1984 (file no. 812-5980) and the related orders issued by the Commission
with respect thereto on June 20, 1978, January 10, 1979, December 31, 1980 and
February 22, 1985, respectively.
We have not reviewed the financial statements, compilation of the
Bonds held by the Trust, or other financial or statistical data contained in
the Registration Statement and the Prospectus, as to which you have been
furnished with the reports of the accountants appearing in the Registration
Statement and the Prospectus.
In addition, we have assumed the genuineness of all agreements,
instruments and documents submitted to us as originals and the conformity to
originals of all copies thereof submitted to us. We have also assumed the
genuineness of all signatures and the legal capacity of all persons executing
agreements, instruments and documents examined or relied upon by us.
In addition, with respect to the opinion set forth in paragraph
(1) below, and insofar as that opinion relates to Glickenhaus & Co., we have
relied, with their approval, on the opinion of Newman Tannenbaum Helpern
Syracuse & Hirsctritt dated of even date herewith.
Statements in this opinion as to the validity, binding effect and
enforceability of agreements, instruments and documents are subject: (i) to
limitations as to enforceability imposed by
207440.1
<PAGE>
3
Glickenhaus & Co.
January 30, 1997
bankruptcy, reorganization, moratorium, insolvency and other laws of general
application relating to or affecting the enforceability of creditors' rights,
and (ii) to limitations under equitable principles governing the availability of
equitable remedies.
We are not admitted to the practice of law in any jurisdiction but
the State of New York and we do not hold ourselves out as experts in or
express any opinion as to the laws of other states or jurisdictions except as
to matters of Federal and Delaware corporate law.
Based exclusively on the foregoing, we are of the opinion that
under existing law:
(1) The Trust Agreements have been duly authorized and entered
into by an authorized officer or General Partner of each of the Depositors and
are valid and binding obligations of the Depositors in accordance with their
terms.
(2) The execution and delivery of the Certificates evidencing the
Units has been duly authorized by the Depositors and such Certificates, when
executed by the Depositors and the Trustee in accordance with the provisions
of the Certificates and the Trust Agreements and issued for the consideration
contemplated therein, will constitute fractional undivided interests in the
Trust, will be entitled to the benefits of the Trust Agreements, will conform
in all material respects to the description thereof for the Units as provided
in the Trust Agreements and the Registration Statement, and the Units will be
fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the use of our name in the Registration
Statement and in the Prospectus under the headings "Tax Status" and "Legal
Opinions". We authorize you to deliver copies of this opinion to the Trustee
and the Underwriters named in Schedule A to the Master Agreement Among
Underwriters relating to the Trust and the Trustee may rely on this opinion as
fully and to the same extent as if it had been addressed to it.
This opinion is intended solely for the benefit of the addressees
and the Trustee in connection with the issuance of the Units of the Trust and
may not be relied upon in any other manner or by any other person without our
express written consent.
Very truly yours,
Battle Fowler LLP
207440.1
MULLER DATA CORPORATION
A Thomson Financial Services Company
January 30, 1997
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271
RE: Empire State Municipal Exempt Trust,
Guaranteed Series 133
Gentlemen:
We have examined Registration Statement File No.333-10731 for the
above-captioned trust. We hereby acknowledge that Muller Data Corporation is
currently acting as the evaluator for Empire State Municipal Exempt Trust
Guaranteed Series 133. Subsequently, we hereby consent to the use in the
Registration Statement of the reference to Muller Data Corporation as
evaluator.
In addition, we hereby confirm that the ratings of the bonds comprising
the Portfolio of the Trust, as indicated the Registration Statement, are the
ratings currently indicated in our Muniview database as of the date of the
evaluation report.
You are hereby authorized to file a copy of this letter with
the Securities and Exchange Commission.
Sincerely,
Mario S. Buscemi
Chief Operating Officer
395 Hudson Street, New York,
New York 10014-3622 -- (212) 807-3800
<PAGE>
Standard & Poor'
A Division of The McGraw-Hill Companies, Inc.
Managed Fund Ratings
25 Broadway
New York, New York 10004-1064
Telephone 212/208-8000
FAX 212/208-8034
Managed Funds Ratings
January 30, 1997
Glickenhaus & Company
6 East 43rd Street
New York, New York 10017
Re: Empire State Municipal Exempt Trust, Guaranteed Series 133
Pursuant to your request for a Standard & Poor's rating on the units of the
above-captioned trust, SEC #333-17301, we have reviewed the information
presented to us and have assigned a 'AAA' rating to the units of the trust and
a 'AAA' rating to the securities contained in the trust. The ratings are
direct reflections, of the portfolios of the trust, which will be composed
solely of securities covered by bond insurance policies that insure against
default in the payment of principal and interest on the securities. Since such
policies have been issued by MBIA, which has been assigned 'AAA' claims paying
ability ratings by Standard & Poor's, Standard & Poor's has assigned a 'AAA'
rating to the units of the trust and to the securities contained in the trust.
Please note that securities covered by bond insurance policies that insure
such securities only as long as they remain in the trust are rated 'AAA' only
as long as they remain in the trust.
Standard & Poor's will maintain serveillance on the 'AAA' rating until
March 1, 1998. On this date, the rating will be automatically withdrawn by
Standard & Poor's unless a post effective letter is requested by the Trust.
You have permission to use the name of Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. and the above-assigned ratings in
connection with your dissemination of information relating to these units,
provided that it is understood that the ratings are not "market" ratings nor
recommendations to buy, hold, or sell the units of the trust or the securities
contained in the trust. Further, it should be understood the rating on the
units does not take into account the extent to which fund expenses or
portfolio asset sales for less than the fund's purchase price will reduce
payment to the unit holders of the interest and principal required to be paid
on the portfolio assets. Standard & Poor's reserves the right to advise its
own clients, subscribers, and the public of the ratings. Standard & Poor's
relies on the sponsor and its counsel, accountants, and other experts for the
accuracy and completeness of the information submitted in connection with the
ratings. Standard & Poor's does not independently verify the truth or accuracy
of any such information.
This letter evidences our consent to the use of the name of Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. in connection
with the rating assigned to the units in the registration statement or
prospectus relating to the units or the trust. However, this letter should not
be construed as a consent by us, within the meaning of Section 7 of the
Securities Act of 1933, to the use of the name of Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. in connection with the
ratings assigned to the securities contained in the trust. You are hereby
authorized to file a copy of this letter with the Securities and Exchange
Commission.
Please be certain to send us a copy of your final prospectus as soon as it
becomes available. Should we not receive them within a reasonable time after
the closing or should they not conform to the representations made to us, we
reserve the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you. If we can
be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford B. Bragg
Managing Director
EXHIBIT 99.5.2
Moody's Investors Service
99 Church Street
New York, NY 10007
January 30, 1997
MBIA Insurance Corporation
113 King Street
Armonk, New York 10504
RE: Empire State Municipal Exempt
Trust, Guaranteed Series 133
Gentlemen:
Moody's Investors Service has assigned the rating of Aaa
(MBIA Insurance Corp.) to each of the bonds insured by MBIA
Insurance Corporation, comprising Empire State Municipal
Exempt Trust, Guaranteed Series 133. The rating is based
upon an insurance policy provided by MBIA Insurance
Corporation. The rating applies to each bond only while it is
held in such trust.
Please send us a final Prospectus when available. Should
you have any questions regarding the above, please do not
hesitate to contact the assigned analyst, Margaret
Kessler, at (212) 553-7884.
Sincerely yours,
Laura Levenstein
Vice President and Managing
Director
DNH:vlw
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The schedule contains summary financial information extracted from the statement
of condition as of date of deposit and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<CURRENCY> US DOLLARS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-30-1997
<PERIOD-END> JAN-30-1997
<PERIOD-TYPE> OTHER
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 9,489,086
<RECEIVABLES> 167,337
<ASSETS-OTHER> 22,500
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,678,923
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 189,837
<TOTAL-LIABILITIES> 189,837
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,489,086
<SHARES-COMMON-STOCK> 10,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 9,489,086
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 9,489,086
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 949
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
