Pursuant to Rule 497(b)
Registration No. 333-30479
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
Prospectus, Part A 9,437 Units Dated: September 28, 2000
NOTE: Part A of this Prospectus may not be distributed
unless accompanied by Part B.
------------------------------------------------------
This Prospectus consists of two parts. The first part contains a "Summary
of Essential Financial Information" on the reverse hereof as of June 30, 2000
and a summary of additional specific information including "Special Factors
Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of May 31, 2000. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, issued by or on behalf of the State of New York
and counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part B under "The Trust." The Bonds deposited in
the portfolio of the Trust are sometimes referred to herein as the "Securities."
Insurance guaranteeing the payment of principal and interest on the Securities
while in the Trust has been obtained by the Trust from the Insurer as set forth
in Part B under "Insurance on the Bonds." Such insurance does not guarantee the
market value of the Securities or the Units offered hereby. The payment of
interest and the preservation of principal are, of course, dependent upon the
continuing ability of the issuers of the Bonds and any other insurer to meet
their obligations.
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part B under "Rights of
Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part B under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid price
of the Securities in the Trust divided by the number of Units outstanding, plus
a sales charge determined on the basis of the maturities of the Securities in
the Trust. See "Public Offering -- Offering Price" in Part B of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do so,
intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part B under "Public Offering --
Market for Units." If such a market is not maintained, a Unit holder may be able
to dispose of his Units only through redemption at prices based upon the
aggregate bid price of the underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should retain both Parts of this Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 137
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 2000
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: INTERACTIVE DATA CORPORATION
<TABLE>
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 9,415,000
Number of Units: 9,437
Fractional Undivided Interest in the Trust Per Unit: 1/9,437
Total Value of Securities in the Portfolio (Based on Bid Side
Evaluations of Securities): $8,860,475.76
==============
Sponsors' Repurchase Price Per Unit: $ 938.86
Plus Sales Charge(1): 58.90
--------------
Public Offering Price Per Unit(2): $ 997.76
==============
Redemption Price Per Unit(3): $ 938.86
Excess of Public Offering Price Over Redemption Price Per Unit: $ 58.90
Weighted Average Maturity of Bonds in the Trust: 24.900 years
</TABLE>
Evaluation Time: 2:00 p.m., New York Time, on the day next following receipt
by a Sponsor of an order for a Unit sale or purchase or by
the Trustee of a Unit tendered for redemption.
Annual Insurance
Premium: $2,267
Evaluator's Fee: $.55 for each issue of Bonds in the Trust for each daily
valuation.
Trustee's Annual
Fee: For each $1,000 principal amount of Bonds in the Trust,
$1.34 under the monthly and $.89 under the semi-annual
distribution plan.
Sponsors' Annual
Fee: Maximum of $.25 per $1,000 face amount of underlying
securities.
Date of Deposit: August 22, 1997
Date of Trust
Agreement: August 22, 1997
Mandatory
Termination Date: December 31, 2045
Minimum Principal
Distribution: $1.00 per Unit
Minimum Value of
the Trust under
which Trust
Agreement may be
Terminated: $2,000,000
-2-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 137
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 2000
(Continued)
<TABLE>
<CAPTION>
Monthly Semi-annual
-------------- --------------
<S> <C> <C>
P Estimated Annual Interest Income: $53.82 $53.82
Less Annual Premium on Portfolio Insurance .24 .24
E Less Estimated Annual Expenses 2.75 2.10
-------------- --------------
R Estimated Net Annual Interest Income: $50.83 $51.48
-------------- --------------
U Estimated Interest Distribution: $ 4.24 $25.74
N Estimated Current Return Based on Public
Offering Price(4): 5.09% 5.16%
I
Estimated Long-Term Return Based on Public
Offering Price(5): 5.15% 5.22%
T
Estimated Daily Rate of Net Interest Accrual: $.14119 $.14300
Record Dates: 15th Day of 15th Day of
Month May and
November
Payment Dates: 1st Day of 1st Day of
Month June and
December
</TABLE>
----------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part B of this Prospectus.
2. Plus accrued interest to July 6, 2000, the expected date of settlement,
of $2.97 monthly and $7.27 semi-annually.
3. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part B under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
4. Estimated Current Return is calculated by dividing the estimated net
annual interest income received in cash per Unit by the Public Offering
Price. Interest income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator, and with the redemption,
maturity, exchange or sale of Securities. This calculation, which
includes cash income accrual only, does not include discount accretion on
original issue discount bonds or on zero coupon bonds or premium
amortization on bonds purchased at a premium. See "Tax Status" and
"Estimated Current Return and Estimated Long-Term Return to Unit Holders"
in Part B of this Prospectus.
5. Estimated Long-Term Return is calculated by using a formula that takes
into account the yields (including accretion of discounts and
amortization of premiums) of the individual Bonds in the Trust's
portfolio, weighted to reflect the market value and time to maturity (or,
in certain cases, to earlier call date) of such Bonds, adjusted to
reflect the Public Offering Price (including sales charge and expenses)
per Unit. See "Estimated Current Return and Estimated Long-Term Return to
Unit Holders" in Part B of this Prospectus.
-3-
<PAGE>
Portfolio Information
---------------------
On May 31, 2000, the bid side valuation of 100% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par and
-0-% was at a premium over par. See Note (B) to "Tax-Exempt Bond Portfolio" for
information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
----------------------------------------
The Portfolio consists of 6 issues of Bonds issued by entities located in New
York or certain United States territories or possessions. The following
information is being supplied to inform Unit holders of circumstances affecting
the Trust. 100.0% of the aggregate principal amount of the Bonds in the
Portfolio are payable from the income of specific projects or authorities and
are not supported by the issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one source,
the primary sources of such income, the number of issues (and the related dollar
weighted percentage of such issues) deriving income from such sources and the
purpose of issue are as follows: Revenue: Health Care, 1 (25.4%); Higher
Education, 2 (30.3%); Transportation, 1 (21.6%); Water and Sewer, 1 (21.2%) and
Special Tax, 1 (1.5%). The Trust is deemed to be concentrated in the Health Care
and Higher Education category.1 Six issues, constituting 100.0% of the Bonds in
the Portfolio, are original issue discount bonds. On May 31, 2000, 6 issues
(100.0%) were rated AAA by Standard & Poor's.2 Subsequent to such date, such
ratings may have changed. See "Tax-Exempt Bond Portfolio." For a more detailed
discussion, it is recommended that Unit holders consult the official statements
for each Security in the Portfolio of the Trust.
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
-- Portfolio" in Part B of this Prospectus.
----------
(1) A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part B of this Prospectus.
(2) For the meanings of ratings, see "Description of Bond Ratings" in Part B
of this Prospectus.
-4-
<PAGE>
Tax Status
----------
Interest on the Bonds in the Trust Portfolio is generally exempt from regular
federal income tax. It is also generally exempt from New York State and New York
City personal income taxes. Bond counsel to the issuing governmental authorities
delivered their opinions confirming that the interest on the Bonds is exempt
from regular Federal income tax and from New York State and City personal income
tax on the dates of issuance of the Bonds. See "The Trust - Portfolio" in Part B
of this Prospectus.
Gain or loss realized on a sale, maturity or redemption of the Bonds by the
Trust or on a sale or redemption of a Unit by a Unit Holder must be taken into
account for federal, state and local income tax purposes. It will be capital
gain or loss if the Units are held as capital assets and will be long-term if
the Units (and the Bonds) have been held for more than one year. The gain or
loss on disposition does not include any amount received that is attributable to
accrued interest or earned original issue discount (which is generally treated
as tax exempt interest) or any accrued market discount (which is treated as
ordinary income). Long-term capital gains realized by noncorporate taxpayers are
taxed at a maximum federal income tax rate of 20% while ordinary income and
short-term capital gains received by noncorporate taxpayers will be taxed at
regular federal income tax rates of up to 39.6%.
-5-
<PAGE>
INDEPENDENT AUDITORS' REPORT
================================
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 137:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 137, including the bond portfolio, as
of May 31, 2000, and the related statements of operations and changes in net
assets for the years ended May 31, 2000 and 1999 and for the period from August
22, 1997 (initial date of deposit) to May 31, 1998. These financial statements
are the responsibility of the Trustee. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of May 31, 2000, by correspondence with the
Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 137 as of May 31, 2000 and the results of its
operations and changes in net assets for the years ended May 31, 2000 and 1999
and for the period from August 22, 1997 (initial date of deposit) to May 31,
1998, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
June 30, 2000
-6-
<PAGE>
<TABLE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
STATEMENT OF NET ASSETS
MAY 31, 2000
=======================================
<S> <C>
INVESTMENTS IN SECURITIES, at market value (cost $9,267,328)......... $8,492,123
ACCRUED INTEREST RECEIVABLE.......................................... 201,811
ORGANIZATION COSTS, net of amortization.............................. 9,866
------------
Total trust property............................................... 8,703,800
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES........................ 53,746
------------
NET ASSETS........................................................... $8,650,054
============
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
----------- ----------- -----------
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED INTERESTS.... $4,466,853 $4,027,093 $8,493,946
UNDISTRIBUTED NET INVESTMENT INCOME........ 31,506 124,602 156,108
----------- ----------- -----------
Total value.............................. $4,498,359 $4,151,695 $8,650,054
----------- ----------- -----------
UNITS OUTSTANDING.......................... 4,967 4,478 9,445
----------- ----------- -----------
VALUE PER UNIT............................. $ 905.65 $ 927.13
----------- -----------
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
<TABLE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
STATEMENTS OF OPERATIONS
=======================================
Period from
August 22,1997
Year ended May 31, (initial date of
--------------------------- deposit) to
2000 1999 May 31, 1998
--------------------------- -----------------
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST........... $ 515,878 $536,287 $407,967
--------------------------- ---------------
EXPENSES:
Trustee fees......................... 14,480 13,699 10,876
Evaluation fees...................... 893 924 441
Insurance premiums................... 2,268 2,267 1,758
Sponsors' advisory fees.............. 2,520 2,495 1,938
Auditors' fees....................... 1,802 1,800 -
Amortization of organization costs... 4,428 4,428 3,511
--------------------------- ---------------
Total expenses................ 26,391 25,613 18,524
--------------------------- ---------------
NET INVESTMENT INCOME.................. 489,487 510,674 389,443
REALIZED GAIN (LOSS) ON SECURITIES SOLD
OR REDEEMED (Note 3)................. (21,752) 3,692 (27)
UNREALIZED MARKET APPRECIATION
(DEPRECIATION)....................... (1,079,219) (37,293) 341,307
--------------------------- ---------------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS............ $ (611,484) $477,073 $730,723
========================= =================
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
STATEMENTS OF CHANGES IN NET ASSETS
=======================================
<TABLE>
<CAPTION>
Period from
August 22,
1997 (initial
Year ended May 31, date of deposit)
-------------------------- to May 31,
2000 1999 1998
-------------------------- -------------
OPERATIONS:
<S> <C> <C> <C>
Net investment income.............. $ 489,487 $ 510,674 $ 389,443
Realized gain (loss) on securities
sold or redeemed................. (21,752) 3,692 (27)
Net change in unrealized market
appreciation (depreciation)...... (1,079,219) (37,293) 341,307
-------------------------- -------------
Net (decrease) increase in net
assets resulting from operations (611,484) 477,073 730,723
-------------------------- -------------
DISTRIBUTIONS TO UNIT HOLDERS OF NET
INVESTMENT INCOME.................. (490,210) (513,674) (229,612)
-------------------------- -------------
CAPITAL SHARE TRANSACTIONS:
Issuance of 10,000 units at date of
deposit (net of gross underwriting
commission of $506,539).......... - - 9,831,900
Redemption of 385; 152 and 18 units (369,785) (157,151) (17,726)
-------------------------- -------------
Total capital share transactions (369,785) (157,151) 9,814,174
------------------------- -------------
NET ASSETS:
Beginning of year.................. 10,121,533 10,315,285 -
-------------------------- -------------
End of year........................ $ 8,650,054 $ 10,121,533 $10,315,285
========================== =============
DISTRIBUTION PER UNIT (Note 2):
Interest:
Monthly plan..................... $50.78 $51.24 $32.41
Semi-annual plan................. $51.58 $51.70 $11.19
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
NOTES TO FINANCIAL STATEMENTS
=======================================
NOTE 1 - ACCOUNTING POLICIES
----------------------------
General
--------
The Trust is registered under the Investment Company Act of 1940.
Securities
----------
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on trade
date. The difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Realized gains (losses) from
securities transactions are determined on the basis of average cost of the
securities sold or redeemed. Interest income and expenses are recorded on the
accrual basis.
Taxes on income
---------------
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Organization costs
------------------
Organization costs of the Trust have been capitalized and are amortized
over a five-year period.
Per unit amounts
----------------
Per unit amounts reflected in the accompanying financial statements are
expressed in whole numbers with no adjustment for fractional interests.
NOTE 2 - DISTRIBUTIONS
----------------------
Interest received by the Trust is distributed to Unit holders either
semi-annually on the first day of June and December or, if elected by the Unit
holder, on the first day of each month, after deducting applicable expenses. No
principal distributions, resulting from the sale or redemption of securities,
were made in the years ended May 31, 2000 and 1999 or in the period ended August
22, 1997 (initial date of deposit) to May 31, 1998.
-10-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
NOTES TO FINANCIAL STATEMENTS
(Concluded)
=======================================
<TABLE>
<CAPTION>
NOTE 3 - BONDS SOLD OR REDEEMED
-------------------------------
Port-
folio Principal Date Description Net Cost Realized
No. Amount Redeemed Proceeds Gain
---------------------------------------------------------------------------------------
Year ended May 31, 2000:
<S> <C> <C> <C> <C> <C> <C>
6 $120,000 6/23/99 Dormitory Authority of the $112,800 $113,400 $ (600)
State of New York, Mount
Sinai School of Medicine
Insured Revenue Bonds,
Series 1994A (MBIA Insured)
6 85,000 7/29/99 Dormitory Authority of the 79,135 80,325 (1,190)
State of New York, Mount
Sinai School of Medicine
Insured Revenue Bonds,
Series 1994A (MBIA Insured)
1 35,000 8/27/99 Metropolitan Transportation 33,163 34,965 (1,802)
Authority, Transit
Facilities Revenue Bonds,
Series 1997C (MBIA Insured)
1 90,000 12/22/99 Metropolitan Transportation 80,775 89,910 (9,135)
Authority, Transit
Facilities Revenue Bonds,
Series 1997C (MBIA Insured)
3 35,000 2/4/00 Dormitory Authority of the 30,800 34,965 (4,165)
State of New York, City
University System
Consolidated Revenue Bonds
(MBIA Insured)
1 45,000 5/11/00 Metropolitan Transportation 40,095 44,955 (4,860)
Authority, Transit
Facilities Revenue Bonds,
Series 1997C (MBIA Insured)
----------- -----------------------------
$410,000 $376,768 $398,520 $ (21,752)
=========== =============================
NOTE 4 - NET ASSETS
-------------------
Cost of 10,000 units at Date of Deposit $10,338,439
Less gross underwriting commission 506,539
-------------
Net cost - initial offering price 9,831,900
Realized net loss on securities sold or redeemed (18,087)
Redemption of 555 units (544,662)
Unrealized market depreciation of securities (775,205)
Undistributed net investment income 156,108
-------------
Net assets $ 8,650,054
=============
</TABLE>
NOTE 5 - SUBSEQUENT EVENT
-------------------------
On June 1, 2000, a monthly and semi-annual income distribution of $4.23
and $25.68 per unit was paid to all monthly and semi-annual distribution plan
Unit holders of record May 15, 2000.
-11-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
BOND PORTFOLIO
MAY 31, 2000
=======================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund Cost of Market Value Annual Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Bonds to as of Income to
No. (Note A) Amount Title of Bond Rate (Note B) Call (Note B) Trust May 31, 2000 Trust
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA $2,030,000 Metropolitan 5.500% 07/01/22 07/01/25 @ 100 S.F. $2,027,970 $1,885,342 $111,650
Transportation 07/01/07 @ 101 Opt.
Authority,
Transit
Facilities
Revenue Bonds,
Series 1997C
(MBIA Insured)
2 AAA 2,000,000 New York City 5.500 06/15/23 06/15/21 @ 100 S.F. 1,998,000 1,850,040 110,000
Municipal Water 06/15/05 @ 100 Opt.
Finance
Authority, Water
and Sewer System
Revenue Bonds,
Fiscal 1996,
Series A (FGIG
Insured)
3 AAA 1,465,000 Dormitory Authority 5.500 07/01/24 07/01/20 @ 100 S.F. 1,463,535 1,351,184 80,575
of the State of 07/01/06 @ 102 Opt.
New York, City
University System
Consolidated
Revenue Bonds
(MBIA Insured)
4 AAA 140,000 Battery Park City 5.500 11/01/29 11/01/27 @ 100 S.F. 139,860 126,809 7,700
Authority, Junior 11/01/06 @ 102 Opt.
Revenue Bonds,
Series 1996A
(AMBAC Insured)
</TABLE>
-12-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
BOND PORTFOLIO
MAY 31, 2000
(Continued)
=======================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund Cost of Market Value Annual Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Bonds to as of Income to
No. (Note A) Amount Title of Bond Rate (Note B) Call (Note B) Trust May 31, 2000 Trust
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 AAA $2,395,000 Dormitory Authority 5.375% 02/01/32 08/01/15 @ 100 S.F. $2,329,138 $2,104,295 $128,731
of the State of 08/01/04 @ 105 Opt.
New York, Millard
Fillmore
Hospitals, FHA -
Insured Mortgage
Hospital Revenue
Bonds,
Series 1997
(AMBAC Insured)
6 AAA 1,385,000 Dormitory Authority 5.000 07/01/21 07/01/17 @ 100 S.F. 1,308,825 1,174,453 69,250
of the State of 07/01/04 @ 102 Opt.
New York, Mount
Sinai School of
Medicine Insured
Revenue Bonds,
Series 1994A
(MBIA Insured)
------------- ----------------------------------------
$9,415,000 $9,267,328 $8,492,123 $507,906
============= =======================================
</TABLE>
-13-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 137
BOND PORTFOLIO
MAY 31, 2000
(Continued)
=======================================
NOTES TO BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part B of this Prospectus. Ratings are by
Standard & Poor's Corporation, except for those indicated by an asterisk
(*), which are by Moody's Investors Service. Certain bond ratings have
changed since the Date of Deposit, at which time all such bonds were rated
A or better by either Standard & Poor's Corporation or Moody's Investors
Service.
(B) Bonds may be redeemable prior to maturity from a sinking fund (mandatory
partial redemption) (S.F.) or at the stated optional call (at the option of
the issuer) (Opt.) or by refunding. Certain bonds in the portfolio may be
redeemed earlier than dates shown in whole or in part under certain unusual
or extraordinary circumstances as specified in the terms and provisions of
such bonds. Single-family mortgage revenue bonds and housing authority
bonds are most likely to be called subject to such provisions, but other
bonds may have similar call features.
-14-
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"). The Trust Agreement for
each Trust is dated the Date of Deposit as set forth in Part A and is among
Glickenhaus & Co. and Lebenthal & Co., Inc. as sponsors (the "Sponsors"), The
Bank of New York, as trustee (the "Trustee") and Interactive Data Corporation
(formerly known as Muller Data Corporation), as evaluator (the "Evaluator").
Objectives. The objective of the Trust is to seek to obtain tax-exempt interest
income through an investment in a fixed insured portfolio consisting primarily
of long-term municipal bonds with average maturities of over ten years as of the
initial Date of Deposit. No assurance can be given that the Trust's objectives
will be achieved.
Portfolio. The portfolio of each Trust consists of the Bonds described in "The
Portfolio" in Part A. As a result of the MBIA Insurance Corporation ("MBIA" or
"Insurer") insurance, Moody's Investors Service ("Moody's") has assigned a
rating of "Aaa" to all of the Bonds in the Trust, as insured, while held in such
Trust and Standard & Poor's Corporation, a division of McGraw-Hill ("Standard &
Poor's") has assigned a rating of "AAA" to the Units and Bonds as of the initial
Date of Deposit. (See "Insurance on the Bonds" in this Part B).
The following factors, among others, were considered in selecting the Bonds:
o whether the Bonds selected were issued by the State of New York (including
its political subdivisions or authorities) or Puerto Rico (or other United
States territories and their political subdivisions or authorities) so
that the interest on such Bonds would be exempt from regular Federal, New
York State and New York City income taxes imposed on the unit holders;
o whether the MBIA insurance for the payment of principal and interest on
the Bonds is available;
o the maturity dates of the Bonds (including whether such Bonds may be
called or redeemed prior to their stated maturity);
o the diversity of the purpose of issue of Bonds; and
o the cost of the Bonds relative to what the Sponsors believe is their
value.
Units. Each Unit represents the fractional undivided interest in the principal
and net income of the Trust. If any Units of the Trust are redeemed after the
date of this prospectus, the fractional undivided interest in the Trust
--------
* References in this Prospectus to the Trust Agreement are qualified in their
entirety by the Trust Agreement which is incorporated herein by reference.
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represented by each unredeemed Unit will increase. Units will remain outstanding
until redeemed or until the termination of the Trust Agreement for the related
Trust.
RISK FACTORS
An investment in Units is subject to the following risks:
Failure of Issuers to Pay Interest and/or Principal. The primary risk associated
with an investment in Bonds is that the issuer of the Bond will default on
principal and/or interest payments when due on the Bond. However, because the
Sponsors have obtained an insurance policy issued by MBIA which covers the Bonds
owned by and held in the Trust and guarantees the timely payment of the interest
and principal due on such Bonds, the risk of loss due to a default is greatly
mitigated. Such a default would have the effect of lessening the income
generated by the Trust and/or the value of the Trust's Units only if the MBIA
insurance policy fails. The bond ratings assigned by major rating organizations
are an indication of the issuer's ability to make interest and principal
payments when due on its bonds. The inclusion of unrated bonds in certain Series
of the Trust, however, may result in less flexibility in their disposal and a
loss to the Trust upon their disposition. Subsequent to the date of deposit the
rating assigned to a bond may decline or a bond may cease to be rated. Neither
event requires an elimination of such Bond from the portfolio, but such an event
may be considered in the Sponsor's determination to direct the Trustee to
dispose of the Bonds. See "Sponsors-Responsibility." Nevertheless, due to the
MBIA insurance policy, all Bonds are rated "Aaa" by Moody's so long as they
remain in the Trust and all Units and Bonds are rated "AAA" by Standard & Poor's
as of the initial Date of Deposit. Neither the Sponsors nor the Trustee shall be
liable in any way for any default, failure or defect in any bond.
Fixed-Rate Bonds. 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 economic recession are two of the
major factors, among others, which contribute to fluctuations in interest rates
and the values of fixed-rate bonds.
Original Issue Discount Bonds and Zero Coupon Bonds. Certain of the Bonds in the
Trust may be original issue discount bonds and/or zero coupon bonds. Original
issue discount bonds are bonds originally issued at less than the market
interest rate. Zero coupon bonds are original issue discount bonds that do not
provide for the payment of any current interest. For Federal income tax
purposes, original issue discount on tax-exempt bonds must be accrued over the
term of the bonds. On sale or redemption of the Bonds, the difference between
(i) the amount realized (other than amounts treated as tax-exempt income as
described below) and (ii) the tax basis of such bonds (properly adjusted, in the
circumstances described below, for the accrual of original issue discount) will
be treated as taxable gain or loss. See "Tax Status" herein.
Redemption or Sale Prior to Maturity. Most of the Bonds in the Portfolio of the
Trust are subject to redemption prior to their stated maturity date pursuant to
sinking fund or call provisions. A call or redemption provision is more likely
to be exercised when the offering price valuation of a bond is higher than its
call or redemption price. Such price valuation is likely to be higher in periods
of declining interest rates. Certain of the Bonds may be sold or redeemed or
otherwise mature. In such cases, the proceeds from such events will be
distributed to Unit holders and will not be reinvested. Thus, no assurance can
be given that the Trust will retain for any length of time its present size and
composition. To the extent that a Bond was deposited in the Trust at a price
higher than the price at which it is redeemable, or at a price higher than the
price at which it is sold, a sale or redemption will result in a loss in the
value of Units. Distributions will generally be reduced by the amount of the
income which would otherwise have been paid with respect to sold or redeemed
bonds. The Estimated Current Return and Estimated Long-Term Return of the Units
may be adversely affected by such sales or redemptions.
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Market Discount. The Portfolio of the Trust may consist of some Bonds whose
current market values were below face value on the Date of Deposit. A primary
reason for the market value of such Bonds being less than face value at maturity
is that the interest rate of such Bonds is at lower rates than the current
market interest rate for comparably rated Bonds. Bonds selling at market
discounts tend to increase in market value as they approach maturity. A market
discount tax-exempt Bond held to maturity will have a larger portion of its
total return in the form of taxable ordinary income and less in the form of
tax-exempt income than a comparable Bond bearing interest at current market
rates. Under the provisions of the Internal Revenue Code in effect on the date
of this Prospectus, any income attributable to market discount will be taxable
but will not be realized until maturity, redemption or sale of the Bonds or
Units.
Risk Inherent in an Investment in Different Types of Bonds. The Trust may
contain or be concentrated in one or more of the classifications of Bonds
referred to below. A Trust is considered to be "concentrated" in a particular
category when the Bonds in that category constitute 25% or more of the aggregate
value of the Portfolio. An investment in Units of the Trust should be made with
an understanding of the risks that these investments may entail, certain of
which are described below.
General Obligation Bonds. Certain of the Bonds in the Portfolio may be
general obligations of a governmental entity that are secured by the taxing
power of the entity. General obligation bonds are backed by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. The taxing power of any governmental entity may be limited, however,
by provisions of state constitutions or laws. An entity's credit will depend on
many factors: tax base, reliance on Federal or state aid, and factors which are
beyond the entity's control.
Appropriations Bonds. Certain Bonds in the Trust may be Bonds that are, in
whole or in part, subject to and dependent upon either the governmental entity
making appropriations from time to time or 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. Once an annual appropriation is made, the governmental entity's
obligation to make lease rental payments is absolute and unconditional
regardless of 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. In the event of non- appropriation, the Sponsors may
instruct the Trustee to sell such Bonds.
Industrial Development Revenue Bonds ("IDRs"). IDRs including pollution
control revenue bonds, are tax- exempt securities issued by states,
municipalities, public authorities or similar entities to finance the cost of
acquiring, constructing or improving various projects. These projects are
usually operated by corporate entities. IDRs are not general obligations of
governmental entities backed by their taxing power. Issuers are only obligated
to pay amounts due on the IDRs to the extent that funds are available from the
unexpended proceeds of the IDRs or receipts or revenues of the issuer. Payment
of IDRs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor. Such corporate operators or guarantors
that are industrial companies may be affected by many factors which may have an
adverse impact on the credit quality of the particular company or industry.
Hospital and Health Care Facility Bonds. The ability of hospitals and other
health care facilities to meet their obligations with respect to revenue bonds
issued on their behalf is dependent on various factors. Some such factors are
the level of payments received from private third-party payors and government
programs and the cost of providing health care services. There can be no
assurance that payments under governmental programs will remain at levels
comparable to present levels or will be sufficient to cover the costs associated
with their bonds. It also may
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be necessary for a hospital or other health care facility to incur substantial
capital expenditures or increased operating expenses to effect changes in its
facilities, equipment, personnel and services. Hospitals and other health care
facilities are additionally subject to claims and legal actions by patients and
others in the ordinary course of business. There can be no assurance that a
claim will not exceed the insurance coverage of a health care facility or that
insurance coverage will be available to a facility. Additionally, proposals for
significant changes in the health care system and the present programs for third
party payment are under consideration in Congress and many states. Future
legislation or changes could adversely affect all hospitals, which in turn,
could hinder their ability to make payment of principal and interest on such
bonds.
Housing Bonds. Multi-family housing revenue bonds and single family mortgage
revenue bonds are state and local housing issues that have been issued to
provide financing for various housing projects. Multi-family housing revenue
bonds are payable primarily from mortgage loans to housing projects for low to
moderate income families. Single-family mortgage revenue bonds are issued for
the purpose of acquiring notes secured by mortgages on residences. The ability
of housing issuers to make debt service payments on their obligations may be
affected by various economic and non-economic factors. Such factors include:
occupancy levels, adequate rental income in multi-family projects, the rate of
default on mortgage loans underlying single family issues and the ability of
mortgage insurers to pay claims. All single family mortgage revenue bonds and
certain multi-family housing revenue bonds are prepayable over the life of the
underlying mortgage or mortgage pool. Therefore, the average life of housing
obligations cannot be determined. However, the average life of these obligations
will ordinarily be less than their stated maturities. Mortgage loans are
frequently partially or completely prepaid prior to their final stated
maturities. 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. To the extent that
these obligations were valued at a premium when a Unit holder purchased Units,
any prepayment at par would result in a loss of capital to the Unit holder and
reduce the amount of income that would otherwise have been paid to Unit holders.
Power Bonds. The ability of utilities to meet their obligations with respect
to bonds they issue is dependent on various factors. These factors include the
rates they may charge their customers, the demand for a utility's services and
the cost of providing those services. Utilities may also be subject to extensive
regulations relating to the rates which they may charge customers. Utilities can
experience regulatory, political and consumer resistance to rate increases.
Utilities engaged in long-term capital projects are especially sensitive to
regulatory lags in granting rate increases. Utilities are additionally subject
to increased costs due to governmental environmental regulation and decreased
profits due to increasing competition. Any difficulty in obtaining timely and
adequate rate increases could adversely affect a utility's results of
operations. Certain municipal utilities or agencies may have entered into
contractual arrangements with investor-owned utilities and large industrial
users and consequently may be dependent in varying degrees on the performance of
such contracts for payment of bond debt service. The Sponsors cannot predict at
this time the ultimate effect of such factors on the ability of any issuers to
meet their obligations with respect to Bonds.
Water and Sewer Revenue Bonds. Water and sewer bonds are generally payable
from user fees. The ability of state and local water and sewer authorities to
meet their obligations may be affected by a number of factors. Some such factors
are the failure of municipalities to utilize fully the facilities constructed by
these authorities, declines in revenue from user charges, rising construction
and maintenance costs, impact of environmental requirements, the difficulty of
obtaining or discovering new supplies of fresh water, the effect of conservation
programs, the impact of "no growth" zoning ordinances and the continued
availability of Federal and state financial assistance and of municipal bond
insurance for future bond issues.
University and College Bonds. The ability of universities and colleges to
meet their obligations is dependent upon various factors. Some of these factors
include the size and diversity of their sources of revenues, enrollment,
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reputation, management expertise, the availability and restrictions on the use
of endowments and other funds, the quality and maintenance costs of campus
facilities. Also, in the case of public institutions, the financial condition of
the relevant state or other governmental entity and its policies with respect to
education may affect an institution's ability to make payment on its own.
Lease Rental Bonds. Lease rental bonds are predominantly issued by
governmental authorities that have no taxing power or other means of directly
raising revenues. Rather, the authorities are financing vehicles created solely
for the construction of buildings or the purchase or equipment that will be used
by a state or local government. Thus, the bonds are subject to the ability and
willingness of the lessee government to meet its lease rental payments which
include debt service on the bonds. Lease rental bonds are subject to the risk
that the lessee government is not legally obligated to budget and appropriate
for the rental payments beyond the current fiscal year. These bonds are also
subject to the risk of abatement in many states as rental bonds cease in the
event that damage, destruction or condemnation of the project prevents its use
by the lessee. Also, in the event of default by the lessee government, there may
be significant legal and/or practical difficulties involved in the reletting or
sale of the project.
Capital Improvement Facility Bonds. The Portfolio of a Trust may contain
Bonds which are in the capital improvement facilities category. Capital
improvement bonds are bonds issued to provide funds to assist political
subdivisions or agencies of a state through acquisition of the underlying debt
of a state or local political subdivision or agency. The risks of an investment
in such bonds include the risk of possible prepayment or failure of payment of
proceeds on and default of the underlying debt.
Solid Waste Disposal Bonds. Bonds issued for solid waste disposal facilities
are generally payable from tipping fees and from revenues that may be earned by
the facility on the sale of electrical energy generated in the combustion of
waste products. The ability of solid waste disposal facilities to meet their
obligations depends upon the continued use of the facility, the successful and
efficient operation of the facility and, in the case of waste-to- energy
facilities, the continued ability of the facility to generate electricity on a
commercial basis. Also, increasing environmental regulation of the federal,
state and local level has a significant impact on waste disposal facilities.
While regulation requires most waste producers to use waste disposal facilities,
it also imposes significant costs on the facilities.
Moral Obligation Bonds. The Trust may also include "moral obligation" bonds.
If an issuer of moral obligation bonds is unable to meet its obligations, the
repayment of the bonds becomes a moral commitment but not a legal obligation of
the state or municipality in question. Thus, such a commitment generally
requires appropriation by the state legislature and accordingly does not
constitute a legally enforceable obligation of debt of the state. The agencies
or authorities generally have no taxing power.
Refunded Bonds. Refunded bonds are typically secured by direct obligations of
the U.S. Government, or in some cases obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. These obligations are
generally noncallable prior to maturity or the predetermined redemption date. In
a few isolated instances to date, however, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.
Airport, Port and Highway Revenue Bonds. Certain facility revenue bonds are
payable from and secured by the revenues from the ownership and operation of
particular facilities, such as airports, highways and port authorities. Airport
operating income may be affected by the ability of airlines to meet their
obligations under the agreements with airports. Similarly, payment on bonds
related to other facilities is dependent on revenues from the projects, such as
use fees from ports, tolls on turnpikes and bridges and rents from buildings.
Payment may be adversely affected by reduction in revenues due to such factors
as increased cost of maintenance, decreased use of a facility,
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scarcity of fuel, reduction or loss of rents or the impact of environmental
considerations. Other Transit Authority Bonds may be dependent primarily or
solely on Federal, state or local assistance and any fluctuations in such
assistance may adversely affect payment on the bonds. The Sponsors cannot
predict what effect conditions may have on revenues which are dependent for
payment on these bonds.
Special Tax Bonds. Special tax bonds are payable for and secured by the
revenues derived by a municipality from a particular tax. Examples of special
taxes are a tax on the rental of a hotel room, on the purchase of food and
beverages, on the rental of automobiles or on the consumption of liquor. Special
tax bonds are not secured by the general tax revenues of the municipality, and
they do not represent general obligations of the municipality. Payment on
special tax bonds may be adversely affected by a reduction in revenues realized
from the underlying special tax. Also, should spending on the particular goods
or services that are subject to the special tax decline, the municipality may be
under no obligation to increase the rate of the special tax to ensure that
sufficient revenues are raised from the shrinking taxable base.
Tax Allocation Bonds. Tax allocation bonds are typically secured by
incremental tax revenues collected on property within the areas where
redevelopment projects, financed by bond proceeds are located. Bond payments are
expected to be made from projected increases in tax revenues derived from higher
assessed values of property resulting from development in the particular project
area and not from an increase in tax rates. Special risk considerations include:
variations in taxable values of property in the project area; successful appeals
by property owners of assessed valuations; substantial delinquencies in the
payment of property taxes; or imposition of any constitutional or legislative
property tax rate decrease.
Transit Authority Bonds. Mass transit is generally not self-supporting from
fare revenues. Additional financial resources must be made available to ensure
operation of mass transit systems as well as the timely payment of debt service.
Often such financial resources include Federal and state subsidies, lease
rentals paid by funds of the state or local government or a pledge of a special
tax. If fare revenues or the additional financial resources do not increase
appropriately to pay for rising operating expenses, the ability of the issuer to
adequately service the debt may be adversely affected.
Convention Facility Bonds. Bonds in the convention facilities category
include special limited obligation securities issued to finance convention and
sports facilities payable from rental payments and annual governmental
appropriations. The governmental agency is not obligated to make payments in any
year in which the monies have not been appropriated to make such payments.
Revenues from the facilities may be adversely affected 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. In addition, these facilities are limited use facilities that
may not be used for purposes other than as convention centers or sports
facilities.
Correctional Facility Bonds. Bonds in the correctional facilities category
include special limited obligation securities issued to construct, rehabilitate
and purchase correctional facilities payable from governmental rental payments
and/or appropriations.
Other Revenue Bonds. Certain Series of the Trust may also contain bonds that
are secured by direct obligations of the U.S. Government or, in some cases,
obligations guaranteed by the U.S. Government, placed in an escrow account
maintained by an independent trustee until maturity or a predetermined
redemption date. In a few isolated instances, bonds which were thought to be
escrowed to maturity have been called for redemption prior to maturity.
Puerto Rico Bonds. Certain of the Bonds in the Trust may be general
obligations and/or revenue bonds of issuers located in Puerto Rico. These Bonds
will be affected by general economic conditions in Puerto Rico. The economy of
Puerto Rico is fully integrated with that of the mainland United States. During
fiscal 1999,
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approximately 87% of Puerto Rico's exports were to the United States mainland,
which was also the source of 60% of Puerto Rico's imports. In fiscal 1999,
Puerto Rico experienced a $9.6 billion positive adjusted merchandise trade
balance. The dominant sectors of the Puerto Rico economy are manufacturing and
services. Gross product in fiscal 1995 was $28.5 billion ($26.0 billion in 1992
prices) and gross product in fiscal 1999 was $38.2 billion ($29.8 billion in
1992 prices). This represents an increase in gross product of 34.4% from fiscal
1995 to 1999 (14.8% in 1992 prices).
Average employment increased from 1,051,000 in fiscal 1995, to 1,147,000 in
fiscal 1999. Average unemployment decreased from 13.8% in fiscal 1995, to 12.5%
in fiscal 1999, the lowest annual unemployment rate in more than two decades.
According to the Labor Department's Household Employment Survey, during fiscal
1999, total employment increased 0.9% over fiscal 1998. Total monthly employment
averaged 1,147,000 in fiscal 1999, compared to 1,137,400 in fiscal 1998. The
seasonally adjusted unemployment rate for January 2000 was 11.9%. According to
the Labor Department's Household Employment Survey, during the first seven
months of fiscal 2000, total employment increased 0.4% over the same period in
fiscal 1999. Total monthly employment averaged 1,138,600 during the first seven
months of fiscal 2000, compared to 1,134,400 in the same period in fiscal 1999.
The Planning Board's gross product forecast for fiscal 2000, made in October
1999, projected an increase of 2.7% over fiscal 1999 and an increase of 2.3% for
fiscal 2001. The performance of the economy during fiscal 2000 and 2001 will be
effected principally by the performance of the United States economy and by the
increase in oil prices and, to a lesser extent, by the level of interest rates.
Since Puerto Rico is heavily dependent on oil imports for its energy needs, if
the level of oil prices remain at their current high levels, this may adversely
affect economic activity in Puerto Rico during the remainder of fiscal 2000 and
during fiscal 2001.
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.
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New York City. The City, with a population of approximately 7.4 million, is
an international center of business and culture. Its non-manufacturing economy
is broadly based, with the banking and securities, life insurance,
communications, publishing, fashion design, retailing and construction
industries accounting for a significant portion of the City's total employment
earnings. Additionally, the City is the nation's leading tourist destination.
Manufacturing activity in the City is conducted primarily in apparel and
printing.
For each of the 1981 through 1999 fiscal years, the City had an operating
surplus, before discretionary transfers, and achieved balanced operating results
as reported in accordance with then applicable generally accepted accounting
principles ("GAAP"), after discretionary transfers. The City has been required
to close substantial gaps between forecast revenues and forecast expenditures in
order to maintain balanced operating results. There can be no assurance that the
City will continue to maintain balanced operating results as required by State
law without tax or other revenue increases or reductions in City services or
entitlement programs, which could adversely affect the City's economic base.
As required by law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the City's
capital, revenue and expense projections and outlines proposed gap- closing
programs for years with projected budget gaps. The City's current financial plan
projects a surplus in the 2000 and 2001 fiscal years, before discretionary
transfers, and budget gaps for each of the 2002, 2003 and 2004 fiscal years.
This pattern of current year surplus operating results and projected subsequent
year budget gaps has been consistent through the entire period since 1982,
during which the City has achieved surplus operating results, before
discretionary transfers, for each fiscal year.
The City depends on aid from the State both to enable the City to balance its
budget and to meet its cash requirements. There can be no assurance that there
will not be reductions in State aid to the City from amounts currently
projected; that, in future years, State budgets will be adopted by the April 1
statutory deadline, or interim appropriations will be enacted; or that any such
reductions or delays will not have adverse effects on the City's cash flow or
expenditures. In addition, the Federal budget negotiation process could result
in a reduction in or a delay in the receipt of Federal grants which could have
additional adverse effects on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's financial plan, including
the City's current financial plan for the 2000 through 2004 fiscal years (the
"2000-2004 Financial Plan" or "Financial Plan"). The City's projections set
forth in the Financial Plan are based on various assumptions and contingencies
which are uncertain and which may not materialize. Such assumptions and
contingencies include the condition of the regional and local economies, the
provision of State and Federal aid and the impact on City revenues and
expenditures of any future Federal or State policies affecting the City.
Implementation of the Financial Plan is dependent upon the City's ability to
market its securities successfully. The City's program for financing capital
projects for fiscal years 2000 through 2004 contemplates the issuance of $7.21
billion of general obligation bonds and $7.33 billion of bonds to be issued by
the New York City Transitional Finance Authority (the "Finance Authority"). In
addition, the Financial Plan anticipates access to approximately $2.4 billion in
financing capacity of TSASC, Inc. ("TSASC"), which will issue debt secured by
revenues derived from the settlement of litigation with tobacco companies
selling cigarettes in the United States. The Finance Authority and TSASC were
created to assist the City in financing its capital program while keeping the
City's indebtedness within the forecast level of the constitutional restrictions
on the amount of debt the City is authorized to incur. In addition, the City
issues revenue and tax anticipation notes to finance its seasonal working
capital requirements. The success of projected public sales of City, New York
City Municipal Water Finance Authority ("Water Authority"), Finance Authority,
TSASC and other bonds and notes will be subject to prevailing market conditions.
The City's planned capital and operating expenditures are dependent upon the
sale of its general obligation debt, as well as debt of the Water Authority,
Finance Authority and TSASC. Future developments
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concerning the City and public discussion of such developments, as well as
prevailing market conditions, may affect the market for outstanding City general
obligation bonds and notes.
The City Comptroller and other agencies and public officials, from time to
time, issue reports and make public statements which, among other things, state
that projected revenues and expenditures may be different from those forecast in
the City's financial plans.
For the 1999 fiscal year, the City had an operating surplus, before
discretionary and other transfers, and achieved balanced operating results,
after discretionary and other transfers, in accordance with GAAP. The 1999
fiscal year is the nineteenth year that the City has achieved an operating
surplus, before discretionary and other transfers, and balanced operating
results, after discretionary and other transfers.
On June 15, 2000, the City released the Financial Plan for the 2000 through
2004 fiscal years, which relates to the City and certain entities that receive
funds from the City, and that reflects changes as a result of the City's expense
and capital budgets for fiscal year 2001, that were adopted on June 6, 2000. The
Financial Plan is a modification to the financial plan submitted to the Control
Board on June 14, 1999 (the "June Financial Plan"), which was subsequently
modified in November 1999 and January and May 2000. The Financial Plan projects
revenues and expenditures for the 2000 and 2001 fiscal years balanced in
accordance with GAAP, and projects gaps of $2.6 billion, $2.7 billion and $2.7
billion for fiscal years 2002 through 2004, respectively, after implementation
of a gap closing program.
Changes since the June Financial Plan include: (i) an increase in projected
revenues of $1.9 billion, $1.2 billion, $1.1 billion, $1.3 billion and $1.6
billion in fiscal years 2000 through 2004, respectively, reflecting primarily
increases in projected personal income, business, sales, real estate transfer
and mortgage recording tax revenues; (ii) a delay in the assumed collection of
$730 million of projected rent payments for the City's airports from fiscal year
2001 through 2004 to fiscal years 2002 through 2005; (iii) establishment of a
labor reserve for merit pay wage increases for City employees of $30 million,
$325 million, $750 million, $800 million and $800 million in fiscal years 2000
through 2004, respectively, contingent upon productivity savings set forth in
the gap- closing program; and (iv) increased costs and revenue losses from State
and Federal actions of $185 million, $392 million, $454 million, $518 million
and $587 million in fiscal years 2000 through 2004, respectively, including a
reduction in the sales tax on utilities approved by the State Legislature; and
(v) other net expenditure savings of $784 million in fiscal year 2000, and net
expenditure increases of $771 million, $897 million, $1.2 billion and $888
million in fiscal years 2001 through 2004, respectively. The changes in net
expenditures include, among other things, pension fund savings of $524 million
and $284 million in fiscal years 2000 and 2001, respectively, resulting
primarily from a market value restart, increased net pension costs of $230
million, $348 million and $286 million in fiscal years 2002 through 2004,
respectively, reflecting recent pension benefit legislation, and increased
spending for education and other agencies. Increased pension costs reflect
certain pension benefit improvements, to which the City and its unions have
agreed, which are estimated at $279 million per year commencing in fiscal year
2001, pending the Governor signing enabling legislation and other actions. In
addition, various benefit enhancements for City and State employees, including a
cost of living adjustment in pension payments, which have been adopted by the
State legislature, are not reflected in the Financial Plan. These benefit
enhancements are expected to increase pension costs reflected in the City's
future financial plan modifications by $98 million, $236 million, $363 million
and $480 million in fiscal years 2001 through 2004, respectively, and by $586
million in fiscal year 2005 when the adjustment in fully implemented. The City
will consider revising the proposed tax reduction program and implementing a
planned expenditure reduction program to help offset these increased pension
costs.
The Financial Plan reflects a proposed discretionary transfer from fiscal
year 2000 to fiscal year 2001 primarily to pay debt service due in fiscal year
2001 totaling $3.2 billion, a proposed discretionary transfer from fiscal year
2001 to fiscal year 2002 to pay debt service due in fiscal year 2002 totaling
$904 million and a proposed
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discretionary transfer from fiscal year 2002 to fiscal year 2003 to pay debt
service in fiscal year 2003 totaling $345 million.
In addition, the Financial Plan sets forth gap-closing actions to eliminate a
previously projected gap for the 2001 fiscal year and to reduce projected gaps
for fiscal years 2002 through 2004. The gap-closing actions for the 2000 through
2004 fiscal years include: (i) additional agency actions totaling $337 million,
$400 million, $210 million, $210 million and $210 million for fiscal years 2000
through 2004, respectively; (ii) assumed additional Federal and State actions of
$75 million in each of fiscal years 2001 through 2004, which are subject to
Federal and State approval; and (iii) proposed productivity savings and reducing
fringe benefits costs totaling $250 million, $265 million, $280 million and $300
million in fiscal years 2001 through 2004, respectively, to partly offset the
costs of the proposed merit pay program which is subject to collective
bargaining negotiations. The Financial Plan also reflects a proposed tax
reduction program totaling $418 million, $735 million, $877 million and $1.1
billion in fiscal years 2001 through 2004, respectively, including elimination
of the commercial rent tax over three years commencing June 1, 2000 at a cost of
$16 million in fiscal year 2001, increasing to $430 million in fiscal year 2004;
a reduction and restructuring in the 14% personal income tax surcharge on July
1, 2000 at a cost of $329 million in fiscal year 2001, increasing to $403
million in fiscal year 2004; the extension of current tax reductions for owners
of cooperative and condominium apartments at an annual cost of approximately
$200 million starting in fiscal year 2002; and repeal of the $2 flat fee hotel
occupancy tax effective December 1, 2000; and other tax reduction proposals
including elimination of the borough commercial revitalization tax. Except for
the elimination of the commercial rent tax, the proposed tax reductions require
State legislative approval. To date, only the reduction and restructuring of the
14% personal income tax surcharge and the reduction of the borough commercial
revitalization program have been passed by the State Legislature.
Wage increases for City employees are provided for in the Financial Plan
through a merit pay plan for two years after their collective bargaining
agreements expire in fiscal years 2000 and 2001, contingent upon productivity
savings. The Financial Plan does not make any provision for wage increases
thereafter. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and other factors which could
have a material effect on the City.
The Financial Plan is based on numerous assumptions, including the condition
of the City's and the region's economies and modest employment growth and the
concomitant receipt of economically sensitive tax revenues in the amounts
projected. The 2000-2004 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent, if
any, to which wage increases for City employees exceed the annual wage costs
assumed for the 2000 through 2004 fiscal years; continuation of projected
interest earnings assumptions for pension fund assets and current assumptions
with respect to wages for City employees affecting the City's required pension
fund contributions; the willingness and ability of the State to provide the aid
contemplated by the Financial Plan and to take various other actions to assist
the City; the ability of City agencies to maintain balanced budgets; the
willingness of the Federal government to provide the amount of Federal aid
contemplated in the Financial Plan; the impact on City revenues and expenditures
of Federal and State welfare reform and any future legislation affecting
Medicare or other entitlement programs; adoption of the City's budgets by the
City Council in substantially the forms submitted by the Mayor; the ability of
the City to implement cost reduction initiatives, and the success with which the
City controls expenditures; the impact of conditions in the real estate market
on real estate tax revenues; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
Although the City has maintained balanced budgets in each of its last
nineteen fiscal years and is projected to achieve balanced operating results for
the 2000 and 2001 fiscal years, there can be no assurance that the gap-closing
actions proposed in the Financial Plan can be successfully implemented or that
the City will maintain a balanced
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budget in future years without additional State aid, revenue increases or
expenditure reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
On July 16, 1998, Standard & Poor's revised its rating of City bonds upward
from BBB+ to A-. Moody's rating of City bonds was revised in February 1998 to A3
from Baa1. On March 8, 1999, Fitch revised its rating of City bonds upward to A.
Moody's, Standard & Poor's and Fitch currently rate the City's outstanding
general obligation bonds A3, A- and A, respectively.
New York State and its Authorities. The State ended the 1999-2000 fiscal year
in balance on a cash basis, with a reported closing balance in the General Fund
of $1.17 billion. The State adopted the debt service portion of the State budget
for the 2000-01 fiscal year on March 30, 2000. The remainder of the budget for
the State's 2000-01 fiscal year was adopted by the State Legislature on May 5,
2000, 35 days after the statutory deadline of April 1, 2000. Following enactment
of the budget, the State prepared a Financial Plan for the 2000-01 fiscal year
which projects total General Fund disbursements of $38.9 billion, an increase of
4.7 percent. Preliminary analysis by the State Division of the Budget indicates
that the State could face a projected 2001-02 budget gap of approximately $2
billion. In a report released on June 7, 2000, the State Comptroller estimated
future State budget gaps of approximately $3.0 billion in 2001-02 and $4.9
billion in 2002-03, assuming certain one-time legislative additions to the
budget would be recurring.
In 2000-01, General Fund disbursements, including transfers to support
capital projects, debt service and other funds, are estimated at $38.92 billion,
an increase of $1.75 billion or 4.72 percent over 1999-2000. Projected spending
under the 2000-01 enacted budget is $992 million above the Governor's Executive
Budget recommendations, including 30-day amendments submitted January 31, 2000.
The 2000-01 Financial Plan projects closing balances in the General Fund and
other reserves of $3.2 billion, including $1.71 billion in the General Fund.
This closing balance is comprised of $675 million in reserves for potential
labor costs resulting from new collective bargaining agreements and other
spending commitments, $547 million in the Tax Stabilization Reserve Fund (for
use in case of unanticipated deficits), $150 million in the Contingency Reserve
Fund (which helps offset litigation risks), and $338 million in the Community
Projects Fund (which finances legislative initiatives). In addition to the $1.71
billion balance in the General Fund, $1.2 billion is projected for reserve in
the STAR Special Revenue Fund and $250 million in the Debt Reduction Reserve
Fund.
Many complex political, social and economic forces influence the State's
economy and finances, which may in turn affect the State Financial Plan. The
2000-01 Financial Plan is also necessarily based upon forecasts of national and
State economic activity. The Division of Budget believes that its projections of
receipts and disbursements relating to the 2000-01 Financial Plan, and the
assumptions on which they are based, are reasonable, however, actual results
could differ materially and adversely from these projections.
Standard & Poor's rates the State's general obligation bonds A+, and Moody's
rates the State's general obligation bonds A2. On November 9, 1999, Standard &
Poor's revised its rating on the State's general obligation bonds from A to A+.
Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract claims. While
the ultimate outcome and fiscal impact, if any, on the State of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the State's ability to
carry out the State Financial Plan.
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The City has estimated that its potential future liability on account of
outstanding claims against it as of June 30, 1999 amounted to approximately $3.5
billion.
Litigation and Legislation. To the best knowledge of the Sponsors, there is no
litigation pending as of the date hereof in respect of any Bonds which might
reasonably be expected to have a material adverse effect upon the Trust.
Litigation may be initiated on a variety of grounds, or legislation may be
enacted, with respect to Bonds in the Trust. Litigation, for example,
challenging the issuance of pollution control revenue bonds under environmental
protection statutes may affect the validity of Bonds or the tax-free nature of
their interest. While the outcome of litigation of this nature can never be
entirely predicted, opinions of bond counsel are delivered on the date of
issuance of each Bond to the effect that the Bond has been validly issued and
that the interest thereon is exempt from New York State, New York City and
regular Federal income tax. In addition, other factors may arise from time to
time which potentially may impair the ability of issuers to make payments due on
the Bonds.
Tax Exemption. From time to time Congress considers proposals to tax the
interest on state and local obligations, such as the Bonds. The Supreme Court
has concluded that the U.S. Constitution does not prohibit Congress from passing
a nondiscriminatory tax on interest on state and local obligations. This type of
legislation, if enacted into law, could adversely affect an investment in Units.
See "Tax Status" herein for a more detailed discussion concerning the tax
consequences of an investment in Units. Unit holders are urged to consult their
own tax advisers.
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 Insurer 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 policy upon the
settlement date of the issue of such "when issued" Bond. The MBIA policy shall
continue in force only with respect to Bonds held in and owned by the Trust. The
Insurer shall not have any liability under the policy with respect to any Bonds
that 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. Except as indicated herein under "Public Offering Price,"
insurance obtained by the Trust has no effect on the price or redemption value
of the Units.
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 at the time a
mandatory sinking fund payment becomes due) and interest on the Bonds as such
payments shall become due but are 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 of payment. 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 insurance policy does not
guarantee payment on an accelerated basis of the payment of any redemption
premium or the value of the Units of the Trust. The MBIA policy also does not
insure against nonpayment of principal 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
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the terms of the Bonds, an event which results in the loss of the tax-exempt
status of interest on such Bonds. The Insurer may not insure the payment of
principal or interest on Bonds which is not required to be paid by the issuer
because the Bonds were not validly issued. At the respective times of issuance
of the Bonds, opinions relating to their validity were rendered by bond counsel
to their respective issuing authorities.
When an issue is accepted for MBIA 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 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 Pre-insured Bonds or Municipal Bond
Insurance Association Pre-insured Bonds.
The 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 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 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 policy will terminate as to such Bond on the business day next
succeeding such date of payment. The termination of the 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 policy. The policy will
terminate as to all Bonds on the date on which the last of the Bonds matures, is
redeemed or is sold by the Trust.
Pursuant to an irrevocable commitment of the Insurer, the Trustee upon the
sale of a Bond in the Trust has the right to obtain permanent insurance with
respect to such Bond (i.e., insurance to maturity of the Bond) (the "Permanent
Insurance") upon the payment of a single predetermined insurance premium from
the proceeds of the sale of such Bond. Accordingly, any Bond in the Trust is
eligible to be sold on an insured basis. It is expected that the Trustee will
exercise the right to obtain Permanent Insurance for a Bond in the Trust upon
instruction from the Sponsors only if upon such exercise the Trust would receive
net proceeds (sale of Bond proceeds less the insurance premium attributable to
the Permanent Insurance and the related custodial fee) from such sale in excess
of the sale proceeds if such Bond were sold on an uninsured basis.
The 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.
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
NY/300226.3
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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 described herein under the heading
"Portfolio". Regardless of whether the insurer of a Pre- insured Bond continues
to fulfill its obligations, however, such Bond will continue to be insured under
the policy obtained by the Trust from MBIA Inc. or MBIA Corp. as long as the
Bond is held in the Trust. Insurance obtained by the issuer of a Bond or by
other parties may be considered to represent an element of market value in
regard to the Bonds thus insured, but the exact effect, if any, of this
insurance on such market value cannot be predicted.
Because the Securities in the Trust are insured by MBIA 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, as insured, as of the initial Date
of Deposit, and Moody's has assigned a rating of "Aaa" to all of the Bonds in
the Trust, as insured, for as long as they are held in such Trust. See "Notes to
Portfolio" in Part A. Also, these ratings reflect Standard & Poor's and Moody's
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.
MBIA is the principal operating subsidiary of MBIA Inc., a New York Stock
Exchange listed company. MBIA Inc. is not obligated to pay the debts of or
claims against MBIA. MBIA is a limited liability corporation rather than a
several liability association. MBIA is domiciled in the State of New York and
licensed to do business in and subject to regulation under the laws of all 50
states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam.
As of December 31, 1999, the Insurer had admitted assets of $7.0 billion
(audited), total liabilities of $4.6 billion (audited), and total capital and
surplus of $2.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of June 30, 2000, the Insurer had admitted assets of $7.3
billion (unaudited), total liabilities of $4.9 billion (unaudited), and total
capital and surplus of $2.4 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of the Insurer's year end financial statements prepared in
accordance with statutory accounting practices are available from the Insurer.
The address of the Insurer is 113 King Street, Armonk, New York 10504.
No representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such information
subsequent to the date thereof. The Sponsors are not aware that the information
herein is inaccurate or incomplete as of the date hereof.
NY/300226.3
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PUBLIC OFFERING
Offering Price. The 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 Charge
-------------------------------------
Percentage of Percentage of
Public Offering Price Net Amount
Per Bond 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.
A proportionate share of accrued and undistributed interest on the Securities
at the date of delivery of the Units to the purchaser is also added to the
Public Offering Price.
Unless Securities are in default in payment of principal or interest or in
significant risk of such default, the Evaluator will not attribute any value to
the Units due to the MBIA 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. As well as
the market value of the Securities and the market value of similar securities of
issuers whose securities, if identifiable, carry identical interest rates and
maturities and are of creditworthiness
NY/300226.3
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comparable to the issuer prior to the default or risk of default. If such other
securities are not identifiable, the Evaluator will compare prices of securities
with substantially identical interest rates and maturities and of a
creditworthiness of minimum investment grade. The value of the insurance will be
equal to the difference between (i) the market value of Defaulted Bonds assuming
the exercise of the right to obtain Permanent Insurance (less the insurance
premium attributable to the purchase of Permanent Insurance and the related
custodial fee) and (ii) the market value of such Defaulted Bonds not covered by
Permanent Insurance. In any case, the Evaluator will consider the ability of
MBIA to meet its commitments under the Trust's insurance policy and MBIA's
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.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge discussed above is
retained by or remitted to the banks. Under the Glass-Steagall Act, banks are
prohibited from underwriting Trust Units; however, the Glass-Steagall Act does
permit certain agency transactions, and banking regulators have not indicated
that these particular agency transactions are not permitted under such Act. In
addition, on November 16, 1999, President Clinton signed the Gramm-Leach-Bliley
Act, repealing certain provisions of the Glass-Steagall Act which had restricted
affiliation between banks and securities firms and amending the Bank Holding
Company Act thereby removing restrictions on banks and insurance companies. This
new legislation grants banks new authority to conduct certain authorized
activity through financial subsidiaries.
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
(assuming the Trustee does not exercise the right to obtain Permanent Insurance
on any Defaulted Bonds), so long as the Trust contains either some Bonds not in
default or any Pre- insured Bonds, not to sell Defaulted Bonds to effect
redemptions or for any other reason but rather to retain them in the portfolio
BECAUSE VALUE ATTRIBUTABLE TO THE INSURANCE OBTAINED BY THE TRUST CANNOT BE
REALIZED UPON SALE. Insurance obtained by the issuer of a Pre-insured Bond, or
by some 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 as long as the Bond is held in the
Trust.
Market for Units. Although they are not obligated to do so, the Sponsors have
maintained and intend to continue to maintain a market for the Units of the
Trust and continuously to offer to purchase Units of the Trust at prices based
on the aggregate bid price of the related Securities. The Sponsors' Repurchase
Price shall be not less than the Redemption Price plus accrued interest through
the expected date of settlement. (See "Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit" 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
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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 the bid side of the underlying securities, divided by the number of
Units outstanding plus a reduced sales charge of 1.5% of the Public Offering
Price. Such arrangements result in less selling effort and selling expenses than
sales to employee groups of other companies. Resales or transfers of Units
purchased under the employee benefit arrangements may only be made through the
Sponsors' secondary market, so long as it is being maintained.
Distribution of Units. The Sponsors are the sole underwriters of the Units. It
is the Sponsor's intention to effect a public distribution of the Units solely
through their own organizations. Units may, however, be sold to dealers who are
members of the National Association of Securities Dealers, Inc. at a discount.
Such discount is subject to change from time to time by the Agent for the
Sponsors. Sales will be made only with respect to the whole Units, and the
Sponsors reserve the right to reject, in whole or in part, any order for the
purchase of Units. It is the Sponsor's intention to continue to qualify Units of
the Trust for sale where such qualification is necessary. In maintaining a
market for the Units (see "Public Offering - Market for Units"), the Sponsors
will realize profits or sustain losses in the amount of any difference between
the price at which they buy Units and the price at which they resell such Units
(based on the Public Offering Price described in the currently effective
Prospectus which includes the sales charge set forth in Part A of this
Prospectus under "Summary of Essential Information", or "Summary of Essential
Financial Information" in some Trusts) or the price at which they may redeem
such Units (based upon the aggregate bid side evaluation of the Securities), as
the case may be, and to the extent that they earn sales charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In contrast,
tax-exempt bonds customarily are offered on a "yield price" basis. Therefore,
the rate of return on each Unit is measured in terms of both Estimated Current
Return and Estimated Long-Term Return. Estimated Current Return based on the
Public Offering Price per Unit and Estimated Long-Term Return per Unit, each as
of the business day prior to the Date of Deposit, is set forth under "Summary of
Essential 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 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
NY/300226.3
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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 Information" in Part A will be realized in the
future.
TAX STATUS
This is a general discussion of some of the income tax consequences of the
ownership of the Units. It applies only to investors who hold the Units as
capital assets. It does not discuss rules that apply to investors subject to
special tax treatment, such as securities dealers, financial institutions,
insurance companies and non-United States persons. Unitholders should consult
their tax advisors in determining the Federal, state and local or other tax
consequences of the purchase, ownership and disposition of Units.
The Bonds
In the opinions of bond counsel delivered on the dates the Bonds were issued
(or in opinions to be delivered, in the case of when-issued Bonds), the interest
on the Bonds is excludable from gross income for regular Federal income tax
purposes under the law in effect at the time the Bonds were issued (except in
certain circumstances because of the identity of the holder).
In the opinion of such bond counsel, an individual holder who resides in New
York State or City will not be subject, respectively, to New York State or City
tax on interest income derived from the Bonds held in the Trust (except in
certain limited circumstances), although such an individual will be subject to
New York State and (if a City resident), City tax, with respect to any gains
realized when Bonds or Units are sold, redeemed or paid at maturity. However,
interest on the Bonds may be subject to other state and local taxes. Interest on
the Bonds is not excludable from net income in determining New York State or New
York City franchise taxes on corporations or financial institutions. The
Sponsors and Paul, Hastings, Janofsky & Walker LLP have not made and will not
make any review of the procedures for the issuance of the Bonds or the basis for
these opinions.
In the opinions of bond counsel referred to above, none of the interest
received on the Bonds is subject to the alternative minimum tax for individuals.
However, the interest will be included in the calculation of a corporation's
alternative minimum tax.
In the case of certain Bonds, the opinions of bond counsel may indicate that
interest received by a substantial user of the facilities financed with proceeds
of the Bonds, or persons related thereto, will not be exempt from regular
Federal income taxes, although interest on those Bonds received by others would
be exempt. The term substantial user includes only a person whose gross revenue
derived with respect to the facilities financed by the issuance of the Bonds is
more than 5% of the total revenue derived by all users of those facilities, or
who occupies more than 5% of the usable areas of those facilities or for whom
those facilities or a part thereof were specifically constructed, reconstructed
or acquired. Related persons are defined to include certain related natural
persons, affiliated corporations, partners and partnerships. Similar rules may
be applicable for state tax purposes.
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No investigation has been made as to the current or future owners or users of
the facilities financed by the bonds, the amount of such persons' outstanding
tax-exempt private activities bonds, or the facilities themselves, and no
assurance can be given that future events will not affect the tax-exempt status
of the Bonds. Investors should consult their tax advisors for advice with
respect to the effect of these provisions on their particular tax situation.
The Trust
In the opinion of Paul Hastings Janofsky & Walker 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 that is excludable from Federal gross
income when received by the Trust will be excludable from the Federal gross
income of the Unit holders.
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 that represent
maturing interest on defaulted obligations held by the Trust will be
excludable from Federal gross income and from New York State and City
personal income to the same extent as such interest would have been
excludable if paid in the normal course by the issuer of the defaulted
obligations.
Each Unit holder will be considered the owner of a pro rata portion of the
Bonds and any other assets held in the Trust under the grantor trust rules of
the Code. Each Unit holder will be considered to have received its pro rata
share of income from the Bonds held by the Trust on receipt by the Trust (or
earlier accrual, depending on the Unit holder's method of accounting and
depending on the existence of any original issue discount), and each Unit
holder will have a taxable event when an underlying Bond is disposed of
(whether by sale, redemption, or payment at maturity) or when the Unit holder
redeems or sells its Units.
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 its
interest in the Trust's assets or upon any gain from the sale of its Units
except to the extent that such gain is from property employed in a business,
trade, profession or occupation carried on in the State of New York.
The opinion of Paul, Hastings, Janofsky & Walker LLP, expressed immediately
above, as to the tax status of the Trust is not affected by the provision of the
Trust Agreement that authorizes the acquisition of Replacement Bonds or by the
implementation of the option automatically to reinvest principal and interest
distributions from the Trust pursuant to the Automatic Accumulation Plan,
described under "Automatic Accumulation Account" in this Part B.
Other Tax Issues
The Trust may contain Bonds issued with original issue discount. Unit holders
are required to accrue tax- exempt original issue discount by using the constant
interest method provided for the holders of taxable obligations and to increase
the basis of a tax-exempt obligation by the amount of accrued tax-exempt
original issue discount. These provisions are applicable to obligations issued
after September 3, 1982 and acquired after March 1, 1984. The Trust's tax basis
(and the Unit holder's tax basis) in a Bond is increased by any accrued original
issue discount.
Unit holders should consult their own tax advisors with respect to the state
and local tax consequences of owning original issue discount bonds. It is
possible that in determining state and local taxes, interest on tax-exempt
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bonds issued with original issue discount may be deemed to be received in the
year of accrual even though there is no corresponding cash payment.
The total cost of a Unit to a Unit holder, including sales charge, is
allocated among the Bonds held in the Trust (in proportion to the values of each
Bond) in order to determine the Unit holder's per Unit tax basis for each Bond.
The tax basis reduction requirements of the Code relating to amortization of
bond premium discussed below will apply separately to the per Unit cost of each
such Bond. A New York State or City resident should determine its basis and
holding period for its Units for New York State and City tax purposes in the
same manner as for Federal tax purposes.
A Unit holder will be considered to have purchased its pro rata interest in a
Bond at a premium when it acquires a Unit if its tax cost for its pro rata
interest in the Bond exceeds its pro rata interest in the Bond's face amount (or
the issue price plus accrued original issue discount of an original issue
discount bond). The Unit holder will be required to amortize any premium over
the period remaining before the maturity or call date of the Bond. Amortization
of premium on a Bond will reduce a Unit holder's tax basis for its pro rata
interest in the Bond, but will not result in any deduction from the Unit
holder's income. Thus, for example, a Unit holder who purchases a Unit at a
price that results in a Bond premium and resells it at the same price will
recognize taxable gain equal to the portion of the premium that was amortized
during the period the Unit holder is considered to have held such interest.
Bond premium must be amortized under the method the Unit holder regularly
employs for amortizing bond premium (assuming such method is reasonable). With
respect to a callable bond, the premium must be computed with respect to the
call price and be amortized to the first call date (and successively to later
call dates based on the call prices for those dates).
Gain (or loss) realized on the sale, maturity or redemption of the Bonds or
on the sale or redemption of a Unit is includible in gross income for Federal
income tax purposes. That gain will be capital gain (or loss), assuming that the
Unit is held as a capital asset, except for any accrued interest, accrued
original issue discount or accrued market discount. When a Bond is sold by the
Trust, taxable gain or loss will be realized by the Unit holder equal the
difference between (i) the amount received (excluding the portion representing
accrued interest) and (ii) the adjusted basis (including any accrued original
issue discount). Taxable gain (or loss) will also result if a Unit is sold or
redeemed for an amount different from its adjusted basis to the Unit holder. The
amount received when a Unit is sold or redeemed is allocated among all the Bonds
in the Trust in the same manner if the Trust had disposed of the Bonds, and the
Unit holder may exclude accrued interest, including any accrued original issue
discount, but not amounts attributable to market discount. The return of a Unit
holder's tax basis is otherwise a tax-free return of capital.
A Unit holder may acquire its Units, or the Trust may acquire Bonds at a
price that represents a market discount for the Bonds. Bonds purchased at a
market discount tend to increase in market value as they approach maturity, when
the principal amount is payable, thus increasing the potential for taxable gain
(or reducing the potential for loss) on their redemption, maturity or sale. Gain
on the disposition of a Bond purchased at a market discount generally will be
treated as ordinary income, rather than capital gain, to the extent of accrued
market discount.
Long-term capital gains realized by non-corporate Unit holders (with respect
to Units and Bonds held for more than one year) will be taxed at a maximum
federal income tax rate of 20%, while ordinary income received by non- corporate
Unit holders will be taxed at a maximum federal income tax rate of 39.6%. The
deductibility of capital losses is limited to the amount of capital gain; in
addition, up to $3,000 of capital losses of noncorporate Unit holders ($1,500 in
the case of married individuals filing separate returns) may be deducted against
ordinary income.
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Since the proceeds from sales of Bonds, under certain circumstances, may not be
distributed pro rata, a Unit holder's taxable income or gain for any year may
exceed its actual cash distributions in that year.
If the Trust purchases any units of a previously issued series, with respect
to such series the Trust's pro rata ownership interest in the bonds of such
series (or any previously issued series) will be treated as though it were owned
directly by the Trust.
Among other things, the Code provides for the following: (1) interest on
certain private activity bonds is an item of tax preference included in the
calculation of alternative minimum tax, however none of the Bonds in the Trust
is covered by this provision; (2) 75% of the amount by which adjusted current
earnings (including interest on all tax- exempt bonds) exceed alternative
minimum taxable income, as modified for this calculation, will be included in
corporate alternative minimum taxable income; (3) subject to certain exceptions,
no financial institution is allowed a deduction for interest expense allocable
to tax-exempt interest on bonds acquired after August 7, 1986; (4) the amount of
the deduction allowed to property and casualty insurance companies for
underwriting loss is decreased by an amount determined with regard to tax-exempt
interest income and the deductible portion of dividends received by such
companies; (5) an issuer must meet certain requirements on a continuing basis in
order for interest on a bond to be tax-exempt, with failure to meet such
requirements resulting in the loss of tax exemption; and (6) the branch profits
tax on U.S. branches of foreign corporations may have the effect of taxing a
U.S. branch of a foreign corporation on the interest on bonds otherwise exempt
from tax.
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 $32,000
for a married couple filing a joint return, zero for married persons filing
separate returns that do not live apart from their spouse at all times during
the taxable year, and $25,000 for all others. Interest on tax-exempt bonds is
added to adjusted gross income for purposes of determining whether an
individual's income exceeds this base amount.
Certain S corporations, with accumulated earnings and profits from years in
which they were subject to regular corporate tax, may be subject to tax on
tax-exempt interest.
If borrowed funds are used by a Unit holder to purchase or carry Units of the
Trust, interest on such indebtedness will not be deductible for Federal income
tax purposes. Fees and expenses of the Trust will also not be deductible by
noncorporate Unit holders. The purchase of Units may be considered to have been
made with borrowed funds even though the borrowed funds are not directly
traceable to the purchase of Units. Similar rules are applicable for purposes of
state and local taxation.
After the end of each calendar year, the Trustee will furnish to each Unit
holder an annual statement containing information relating to the interest
received by the Trust on the Bonds, the gross proceeds received by the Trust
from the disposition of any Bond (resulting from redemption or payment at
maturity of any Bond or the sale by the Trust of any Bond), and the fees and
expenses paid by the Trust. The Trustee will also furnish annual information
returns to each Unit holder and to the Internal Revenue Service. Unit holders
are required to report to the Internal Revenue Service the amount of tax-exempt
interest received during the year.
NY/300226.3
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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 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 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
Information" in Part A. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date following their purchase of Units under the applicable plan of
distribution.
The difference between the estimated net interest accrued to the first Record
Date and to the related Distribution Date is an asset of the respective Unit
holder and will be realized in subsequent distributions or upon the earlier of
the sale of such Units or the maturity, redemption or sale of Securities in the
Trust.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units 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
NY/300226.3
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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 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. All or a portion of the expenses incurred in creating and
establishing the Trust for Series 119 and subsequent Series, including the cost
of the initial preparation and execution of the Trust Agreement, the initial
fees and expenses of the Trustee, legal expenses and other actual out-of-pocket
expenses, have been paid by the Trust. For Series 119 through 140 such expenses
will be amortized over a five year period. Organizational expenses for Series
141 and subsequent Series will be charged upon the investor's purchase of Units
during the initial offering period and will be paid at the close of the initial
offering period by the Trust. All advertising and selling expenses, as well as
any organizational expenses not paid by the Trust, will be borne by the Sponsors
at no cost to the Trust.
Fees. The Trustee's, Sponsors' and Evaluator's fees are set forth under the
"Summary of Essential Information" in Part A. The Sponsors' fee, which is earned
for portfolio supervisory services, is based on the face amount of
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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
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 Information" for
the Trust; provided, however, that such fees may be adjusted as set forth under
the "Summary of Essential 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 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 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 Information" in Part A. 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 Pre-insured Bonds or Municipal Bond Insurance
Association Pre-insured Bonds. The premium payable for Permanent Insurance and
the related custodial fee will be paid solely from the proceeds of the sale of a
Bond from the Trust in the event the Trustee exercises the right to obtain
Permanent Insurance on such Bond.
Other Charges. The following additional charges are or may be incurred by the
Trust: all expenses (including audit and counsel fees) of the Trustee incurred
in connection with its activities under the Trust Agreement, including annual
audit expenses by independent public accountants selected by the Sponsors (so
long as the Sponsors maintain a secondary market, the Sponsors will bear any
audit expense which exceeds 50 cents per Unit), the expenses and costs of any
action undertaken by the Trustee to protect the Trust and the rights and
interests of the Unit holders; fees of the Trustee for any extraordinary
services performed under the Trust Agreement; indemnification of the Trustee for
any loss or liability accruing to it without willful misconduct, bad faith, or
gross negligence on its part, arising out of or in connection with its
acceptance or administration of the Trust; and all taxes and other governmental
charges imposed upon the Securities or any part of the Trust (no such taxes or
charges are being levied or made or, to the knowledge of the Sponsors,
contemplated).
For Series 144 and subsequent Series, to the extent lawful, the Trust shall
bear the expenses associated with updating the Trust's registration statement
and maintaining registration or qualification of the Units and/or a Trust
NY/300226.3
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under Federal or state securities laws subsequent to initial registration. Such
expenses shall include legal fees, accounting fees, typesetting fees, electronic
filing expenses and regulatory filing fees. The expenses associated with
updating registration statements have been historically paid by a unit
investment trust's sponsor. All direct distribution expenses of the trusts
(including the costs of maintaining the secondary market for the trusts), such
as printing and distributing prospectuses, and preparing, printing and
distributing any advertisements or sales literature will be paid at no cost to
the Trust. Any payments received by the Sponsors reimbursing it for payments
made to update the Trust's registration statement will not exceed the costs
incurred by the Sponsors.
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. In connection with each distribution, the Trustee will
furnish Unit holders of the Trust with 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 canceled.
Certificates for Units to be redeemed must be delivered to the Trustee and
must be properly endorsed and accompanied by a written instrument of transfer.
Thus, redemption of Units cannot be effected until certificates representing
such Units have been delivered by the person seeking redemption (see "Rights of
Unit Holders--
NY/300226.3
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Certificates" in Part B). Unit holders must sign exactly as their names appear
on the face of the certificate with signature(s) guaranteed by an officer of a
national bank or trust company, a member firm of either the New York, Midwest or
Pacific Stock Exchange, or in such other manner as may be acceptable to the
Trustee. In certain instances the Trustee may require additional documents such
as, but not limited to, trust instruments, certificates of death, appointments
as executor or administrator or certificates of corporate authority.
Within seven calendar days following such tender, or if the seventh calendar
day is not a business day, on the first business day prior thereto, the Unit
holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the "Summary of Essential 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 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 (assuming that the Trustee does not exercise the right to obtain Permanent
Insurance on Defaulted Bonds) under certain circumstances the Sponsors may apply
to the Securities and Exchange Commission for an order permitting a full or
partial suspension of the right of Unit holders to redeem their Units if a
significant portion of the Bonds in the 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
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suspend the rights of Unit holders to redeem their Units, and without the
suspension of such redemption rights when faced with excessive redemptions the
Sponsors may not be able to preserve the benefits of the Trust's insurance on
Defaulted Bonds.
Computation of Redemption Price per Unit. The Redemption Price per Unit is
determined by the Trustee on the basis of the bid prices of the Securities in
the Trust, as of the Evaluation Time stated under "Summary of Essential
Information" in Part A, on the day any such determination is made. This
Redemption Price per Unit is each Unit's pro rata share, determined by the
Trustee, of: (1) the aggregate value of the Securities in the Trust (determined
by the Evaluator as set forth below), except for those cases in which the value
of insurance has been included, (2) cash on hand in the Trust (other than cash
covering contracts to purchase Securities), and (3) accrued and unpaid interest
on the Securities as of the date of computation, less (a) amounts representing
taxes or governmental charges payable out of the Trust, (b) the accrued expenses
of the Trust, and (c) cash held for distribution to Unit holders of record as of
a date prior to the evaluation. The Evaluator may determine the value of the
Securities in the Trust (1) on the basis of current bid prices for the
Securities, (2) if bid prices are not available for any Securities, on the basis
of current bid 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.
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. The Sponsors will purchase
these Units 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 any series of Empire State Municipal Exempt
Trust for which the Sponsors are maintaining a secondary market (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 an option to exchange a Unit of an Exchange Trust for a Unit of
a different series of an Exchange Trust being offered by the Sponsors (other
than in the initial offering period). These Units are offered 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
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sales charge of the series into which the investment is being converted,
determined as of the date of the exchange. Such exchanges will be effected in
whole Units only. Any excess proceeds from the Units being surrendered will be
returned, and the Unit holder will not be permitted to advance any new money in
order to complete an exchange. The Sponsors reserve the right to modify, suspend
or terminate this plan at any time without further notice to the Unit holders.
In the event the exchange option is not available to a Unit holder at the time
he wishes to exercise it, the Unit holder will be immediately notified and no
action will be taken with respect to his Units without further instructions from
the Unit holder.
Unit holders are urged to consult their own tax advisors as to the tax
consequences of exchanging Units.
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<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 regular Federal income tax, and from New
York State and New York City personal 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 regular Federal income tax, and from 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, and New York State and 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
or modify this Plan at any time for any reason. The reinvestment of
distributions from the Trust through the Plan will not affect the income tax
status of such distributions. For more complete information about investing in
the 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.
NY/300226.3
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<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
who receive distributions from the Trust on a semi-annual basis to elect to have
distributions from Units in the Trust automatically reinvested in shares of the
Bond Fund. The Bond Fund is an open-end, non- diversified investment company
whose investment objective is to maximize current income exempt from regular
Federal income tax, and from New York State and New York City personal 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, and New York State and 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.
A Unit holder who receives distributions from the Trust on a semi-annual
basis may request from The Bank of New York (the "Plan Agent"), a copy of the
Bond Fund Prospectus describing the Bond Fund and a form by which such Unit
holder may elect to become a participant ("Participant") in the Plan.
Thereafter, as directed by such person, distributions on the Participant's 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.
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
or modify 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 or modify this Plan at
any time for any reason. The reinvestment of distributions from the Trust
through the Plan will not affect the income tax status of such distributions.
For more complete information about investing in the Bond Fund through the Plan,
including charges and expenses, return the enclosed card for a copy of the Bond
Fund Prospectus. Read it carefully before you decide to participate.
NY/300226.3
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<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors of Empire State Municipal Exempt
Trust, Series 10 and all subsequent series, including all Guaranteed Series.
Glickenhaus, a New York limited partnership, is engaged in the underwriting
and securities brokerage business, and in the investment advisory business. It
is a member of the New York Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. and is an associate member of the American Stock
Exchange. Glickenhaus acts as a sponsor for successive Series of The Glickenhaus
Value Portfolios and The Municipal Insured National Trusts, and for the prior
series of Empire State Municipal Exempt Trust including those sold under the
name of Municipal Exempt Trust, New York Exempt Series 1, New York Series 2 and
New York Series 3. Glickenhaus, in addition to participating as a member of
various selling groups of other investment companies, executes orders on behalf
of investment companies for the purchase and sale of securities of such
companies and sells securities to such companies in its capacity as a broker or
dealer in securities.
Lebenthal, a New York corporation originally organized as a New York
partnership in 1925, has been buying and selling municipal bonds for its own
account as a dealer for over 74 years; Lebenthal also buys and sells securities
as an agent and participates as an underwriter in public offerings of municipal
bonds. It acted as a sponsor 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.
NY/300226.3
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Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Trust Agreement to the same
extent as Securities originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Securities,
the Trustee is required to give notice thereof to each Unit holder, identifying
the obligations eliminated and the Securities substituted therefor. Except as
stated in this and the preceding paragraph, the acquisition by the Trust of any
securities other than the Securities initially deposited is prohibited.
If any default in the payment of principal or interest on any Bond occurs and
no provision for payment is made therefor either pursuant to the portfolio
insurance with respect to the Trust or otherwise within 30 days, the Trustee is
required to notify the Sponsors thereof. If the Sponsors fail to instruct the
Trustee to sell or to hold such Bond within 30 days after notification by the
Trustee to the Sponsors of such default, the Trustee may in its discretion sell
the defaulted Bond and not be liable for any depreciation or loss thereby
incurred. See "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 the Mandatory Termination Date, 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 Information" in Part A).
Agent for Sponsors. The Sponsor named as Agent for Sponsors under the "Summary
of Essential Information" in Part A 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 Sponsors 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 Sponsor act as the sole Sponsor.
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 Sponsor is agreeable to such resignation. Concurrent with or
subsequent to such resignation a new Sponsor may be appointed by the remaining
Sponsor and the Trustee to assume the duties of the resigning Sponsor. If, at
any time, only one Sponsor is acting under each
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Trust Agreement and that Sponsor shall resign or fail to perform any of its
duties thereunder or becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, then the Trustee may appoint a
successor sponsor or terminate the Trust Agreement and liquidate the Trust.
Financial Information. The total partners' capital of Glickenhaus at September
30, 1999 was $198,463,739 (audited); and the total stockholders' equity of
Lebenthal at March 31, 2000 was $7,122,259 (audited).
The foregoing information with regard to the Sponsors relates to the Sponsors
only, and not to any series of Empire State Municipal Exempt Trust. Such
information is included in this Prospectus only for the purpose of informing
investors as to the financial responsibility of the Sponsors and their ability
to carry out their contractual obligations shown herein. More comprehensive
financial information can be obtained upon request from any Sponsors.
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. Monies held by the Trustee for the Trust will be held in a non-interest
bearing account at the Trustee.
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.
NY/300226.3
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<PAGE>
EVALUATOR
The Evaluator shall be Interactive Data Corporation, a New York corporation
with main offices located at 100 Williams Street, New York, New York 10014. The
Evaluator is a wholly owned subsidiary of Data Broadcasting Corporation, a
Delaware corporation.
Limitations on Liability. The Trustee and the Sponsors may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Trust Agreement
shall be made in good faith upon the basis of the best information available to
it; provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsors or 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.
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
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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 were passed upon by Battle Fowler LLP, 75 East 55th
Street, New York, New York 10022, as special counsel for the Sponsors as to
Series 65 through 152 of Empire State Municipal Exempt Trust, Guaranteed Series.
Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York
10022, currently acts as special counsel for the Sponsors. Winston & Strawn, 200
Park Avenue, New York, New York 10166, acts as counsel for the Trustee.
AUDITORS
The statement of condition of the Trust included in this Prospectus has been
audited by BDO Seidman, LLP, independent certified public accountants, as stated
in their report appearing herein, and has been so included in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Rating. The ratings are based on current information
furnished to Standard & Poor's by the issuer and obtained by Standard & Poor's
from other sources it considers reliable. Standard & Poor's does not perform an
audit in connection with any rating and may, on occasion, rely on unaudited
financial information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information or for other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA--Bonds rated AAA have the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing
NY/300226.3
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<PAGE>
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.
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.
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<PAGE>
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.
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---------------------------------------
This Prospectus does not contain all
of the information with respect to the
Trust set forth in its registration
statements filed with the Securities
and Exchange Commission, Washington,
D.C. under the Securities Act of 1933 EMPIRE STATE
and the Investment Company Act of MUNICIPAL EXEMPT TRUST
1940, and to which reference is hereby
made. Information may be reviewed and
copied at the Commission's Public
Reference Room, and information on the
Public Reference Room may be obtained
by calling the SEC at 1-202-942-8090.
Copies may be obtained from the SEC
by:
o electronic request (after GUARANTEED SERIES
paying a duplicating fee)
at the following e-mail
address: [email protected]
-------------------
o visiting the SEC internet
address: http://www.sec.gov.
------------------- PROSPECTUS, PART B
o writing: Public Reference DATED SEPTEMBER 28, 2000
Section of the Commission, 450
Fifth Street, N.W., Washington,
D.C. 20549-6009
-------------------------------------
Sponsors:
INDEX
-------------------------------------
GLICKENHAUS & CO.
6 East 43rd Street
Page New York, New York 10017
(212) 953-7532
THE TRUST.............................1
RISK FACTORS..........................2 LEBENTHAL & CO., INC.
120 Broadway
INSURANCE ON THE BONDS...............12 New York, New York 10271
(212) 425-6116
PUBLIC OFFERING......................15
ESTIMATED CURRENT RETURN AND
ESTIMATED LONG-TERM RETURN
TO UNIT HOLDERS..................17
TAX STATUS...........................18
RIGHTS OF UNIT HOLDERS...............22
AUTOMATIC ACCUMULATION ACCOUNT.......29
SPONSORS.............................30
TRUSTEE..............................32
EVALUATOR............................33
AMENDMENT AND TERMINATION OF THE
TRUST AGREEMENT..................33
LEGAL OPINIONS.......................34
AUDITORS.............................34
DESCRIPTION OF BOND RATINGS..........34
-------------------------------------
No person is authorized to give any
information or to make any
representations with respect to this
Trust, not contained in this
Prospectus and you should not rely on
any other information. The Trust is
registered as a unit investment trust
under the Investment Company Act of
1940. Such registration does not imply
that the Trust or any of its Units
have been guaranteed, sponsored,
recommended or approved by the United
States or any other state or any
agency or office thereof.
------------------------------------- ---------------------------------------
NY/300226.3
