As filed with the Securities and Exchange Commission on January 28, 1999
Registration No. 333-30481*
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 138 AND
GUARANTEED SERIES 139
B. Name of depositors: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
C. Complete address of depositors' principal executive offices:
GLICKENHAUS & CO. LEBENTHAL & CO., INC.
6 East 43rd Street 120 Broadway
New York, NY 10017 New York, NY 10271
D. Name and complete address of agent for service:
SETH M. GLICKENHAUS JAMES A. LEBENTHAL Copy of comments to:
Glickenhaus & Co. Lebenthal & Co., Inc. MICHAEL R. ROSELLA, ESQ.
6 East 43rd Street 120 Broadway Battle Fowler LLP
New York, NY 10017 New York, NY 10271 75 East 55th Street
New York, NY 10022
(212) 856-6858
It is proposed that this filing become effective (check appropriate box)
/x/ immediately upon filing pursuant to paragraph (b) of Rule 485
on ( date ) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on ( date ) pursuant to paragraph (a) of Rule 485
================================================================================
* The Prospectus included in this Registration Statement constitutes a
combined Prospectus as permitted by the provisions of Rule 429 of the
General Rules and Regulations under the Securities Act of 1933 (the
"Act"). Said Prospectus covers units of undivided interest in Empire
State Municipal Exempt Trust, Guaranteed Series 138 and Guaranteed
Series 139 covered by prospectuses heretofore filed as part of separate
registration statements on Form S-6 (Registration Nos. 333-30481 and
333-42453, respectively) under the Act.
798476.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
Prospectus, Part I 9,967 Units Dated: January 28, 1999
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a
"Summary of Essential Financial Information" on the reverse hereof as of October
30, 1998 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 September 30, 1998. The second part
of this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of
obtaining tax-exempt interest income through investment in a diversified,
insured portfolio of long-term bonds, issued by or on behalf of the State of New
York and counties, municipalities, authorities or political subdivisions thereof
or issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited in
the portfolio of the Trust are sometimes referred to herein as the "Securities."
Insurance guaranteeing the payment of principal and interest on the Securities
while in the Trust has been obtained by the Trust from the Insurer as set forth
in Part II under "Insurance on the Bonds." Such insurance does not guarantee the
market value of the Securities or the Units offered hereby. The payment of
interest and the preservation of principal are, of course, dependent upon the
continuing ability of the issuers of the Bonds and any other insurer to meet
their obligations. As a result of the insurance on the Bonds, the Units are
rated "AAA" by Standard & Poor's Ratings Services, a Division of The McGraw-Hill
Companies ("Standard & Poor's").
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest on the Bonds which is exempt from federal income tax when
received by the Trust will be excludable from the federal gross income of the
Unit holders and, with certain exceptions, interest income to the Unit holders
is generally exempt from all New York State and New York City income taxes.
Capital gains, if any, are subject to tax. See Part II under "Tax Status."
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights of
Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid
price of the Securities in the Trust divided by the number of Units outstanding,
plus a sales charge determined on the basis of the maturities of the Securities
in the Trust. See "Public Offering -- Offering Price" in Part II of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do
so, intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering --
Market for Units." If such a market is not maintained, a Unit holder may be able
to dispose of his Units only through redemption at prices based upon the
aggregate bid price of the underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should retain both Parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- 1 -
798756.1 1/19/99 9:12p
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 138
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 30, 1998
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 9,980,000
Number of Units (1): 9,967
Fractional Undivided Interest in the Trust Per Unit: 1/9,967
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $10,338,149.56
==============
Sponsors' Repurchase Price Per Unit: $ 1,037.28
Plus Sales Charge(2): 47.73
Public Offering Price Per Unit(3): $ 1,085.01
==============
Redemption Price Per Unit(4): $ 1,037.28
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 47.73
Weighted Average Maturity of Bonds in the Trust: 25.383 years
Evaluation Time: 2:00 p.m., New York Time, on the next
day 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: $990
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, $1.21 under the
monthly and $.81 under the semi-annual
distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount
of underlying Securities.
Date of Deposit: November 25, 1997
Date of Trust Agreement: November 25, 1997
Mandatory Termination Date: December 31, 2046
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000 or 20% of the value of the
Trust as of the date of deposit,
whichever is lower.
2
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 138
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 30, 1998
(Continued)
Monthly Semi-annual
------- -----------
P Estimated Annual Interest Income: $52.90 $52.90
Less Annual Premium on Portfolio Insurance .10 .10
E Less Estimated Annual Expenses 1.97 1.47
Less Organizational Costs .41 .41
------ ------
R Estimated Net Annual Interest Income: $50.42 $50.92
====== ======
U Estimated Interest Distribution: $ 4.20 $25.46
N Estimated Current Return Based on Public
Offering Price (5): 4.65% 4.69%
I
Estimated Long-Term Return Based
T on Public Offering Price (6): 4.19% 4.24%
Estimated Daily Rate of Net Interest
Accrual: $.14006 $ .14144
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
- -------------------
1. The number of units is expressed in whole numbers with no adjustment for
fractional units.
2. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
3. Plus accrued interest to November 4, 1998, the expected date of settlement,
of $2.67 monthly and $23.89 semi-annually.
4. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
5. Estimated Current Return is calculated by dividing the estimated net annual
interest income received in cash per Unit by the Public Offering Price.
Interest income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator, and with the redemption, maturity, exchange or
sale of Securities. This calculation, which includes cash income accrual
only, does not include discount accretion on original issue discount bonds
or on zero coupon bonds or premium amortization on bonds purchased at a
premium. See "Tax Status" and "Estimated Current Return and Estimated
Long-Term Return to Unit Holders" in Part II of this Prospectus.
6. Estimated Long-Term Return is calculated by using a formula that takes into
account the yields (including accretion of discounts and amortization of
premiums) of the individual Bonds in the Trust's portfolio, weighted to
reflect the market value and time to maturity (or, in certain cases, to
earlier call date) of such Bonds, adjusted to reflect the Public Offering
Price (including sales charge and expenses) per Unit. See "Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in Part II
of this Prospectus
3
<PAGE>
Portfolio Information
---------------------
On September 30, 1998, the bid side valuation of 100% of the aggregate
principal amount of Bonds in the Portfolio for this Trust 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
----------------------------------------
On September 30, 1998, the Portfolio consisted of six 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. 20.0% of the aggregate principal amount of
the Bonds in the Portfolio are payable from appropriations. 80.0% 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: Appropriations, one (20.0%); Revenue: Health
Care, one (12.5%); Higher Education, two (25.9%); Investor Owned Utility, one
(20.0%) and Special Tax, one (21.6%). The Trust is deemed to be concentrated in
the Higher Education Bond category.1 Five issues, constituting 87.5% of the
Bonds in the Portfolio, are original issue discount bonds. All of the issues
(100%) 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.
Tax Status
----------
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
- -- Portfolio" in Part II of this Prospectus.
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 is, however,
includable in gross income for federal, state and local income tax purposes and
will be capital gain (or loss) assuming that the Unit is held as a capital
asset. Such gain (or loss) may be long- or short-term depending on the facts and
circumstances. Such gain (or loss) does not include any amount received in
respect of accrued interest, accrued original issue discount or accrued market
discount (which is taxable at ordinary income tax rates). Bonds selling at a
market discount tend to increase in market value as they approach maturity when
the principal amount is payable, thus increasing the potential for taxable gain
(or reducing the potential for loss) on their redemption, maturity or sale.
Capital gains realized by noncorporate taxpayers on the sale or other
disposition of Bonds or Units will be taxed at a maximum federal income tax rate
of 20%, if the asset has been held for more than one year, while ordinary income
received by individuals will be taxed at a maximum federal income tax rate of
39.6%.
- -------------------
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part II
of this Prospectus.
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 138:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 138, including the tax-exempt bond
portfolio, as of September 30, 1998, and the related statements of operations
and changes in net assets for the period from November 25, 1997 (initial date of
deposit) to September 30, 1998. These financial statements are the
responsibility of the Trustee. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1998, 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 audit provides 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 138 as of September 30, 1998, and the results of its
operations and changes in net assets for the period from November 25, 1997
(initial date of deposit) to September 30, 1998 in conformity with generally
accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 30, 1998
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1998
===================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
INVESTMENTS IN SECURITIES, at market value (cost $9,833,600) (Note 1)........................... $10 319 115
ACCRUED INTEREST RECEIVABLE..................................................................... 151 387
ORGANIZATIONAL COSTS, net of accumulated amortization of $3,385
(Note 1)...................................................................................... 16 927
-----------
Total trust property...................................................................... 10 487 429
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES................................................... 64 302
-----------
NET ASSETS...................................................................................... $10 423 127
===========
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
------------ ------------ -----
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS........................................ $6 749 066 $3 567 865 $10 316 931
UNDISTRIBUTED NET INVESTMENT
INCOME........................................... 40 342 65 854 106 196
---------- ---------- -----------
Total value................................ $6 789 408 $3 633 719 $10 423 127
========== ========== ===========
UNITS OUTSTANDING.................................... 6 528 3 451 9 979
========== ========== ===========
VALUE PER UNIT....................................... $ 1 040.04 $ 1 052.95
========== ==========
</TABLE>
See Notes to Financial Statements
6
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
STATEMENT OF OPERATIONS
PERIOD FROM NOVEMBER 25, 1997 (INITIAL
DATE OF DEPOSIT) TO SEPTEMBER 30, 1998
===================================
INVESTMENT INCOME - INTEREST............................... $438 277
--------
EXPENSES:
Trustee fees........................................... 10 794
Evaluation fees........................................ 750
Insurance premiums..................................... 850
Sponsors' advisory fees................................ 2 190
Auditors' fees......................................... 1 800
Amortization of organizational costs (Note 1).......... 3 385
--------
Total expenses......................... 19 769
--------
NET INVESTMENT INCOME...................................... 418 508
REALIZED LOSS ON SECURITIES SOLD
OR REDEEMED (Notes 1 and 3)............................... (50)
UNREALIZED MARKET APPRECIATION (Note 1).................... 485 515
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................... $903 973
========
See Notes to Financial Statements
7
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM NOVEMBER 25, 1997 (INITIAL
DATE OF DEPOSIT) TO SEPTEMBER 30, 1998
==================================
OPERATIONS:
Net investment income......................................... $ 418 508
Realized loss on securities sold or redeemed (Notes 1 and 3).. (50)
Unrealized market appreciation (Note 1)....................... 485 515
-----------
Net increase in net assets resulting from operations...... 903 973
-----------
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income......................................... (312 312)
-----------
CAPITAL SHARE TRANSACTIONS:
Redemption of 21 units at September 30, 1998.................. (21 284)
-----------
NET INCREASE IN NET ASSETS........................................ 570 377
NET ASSETS:
Beginning of period........................................... 9 852 750
-----------
End of period................................................. $10 423 127
===========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan.............................................. $ 35.53
Semi-annual plan.......................................... $ 23.16
See Notes to Financial Statements
8
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
NOTES TO FINANCIAL STATEMENTS
===================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
- ----------------------------
Securities
----------
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on the 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.
Taxes on income
---------------
The Trust is not subject to taxes on income and, accordingly, no provision
has been made.
Termination of Trust
--------------------
The mandatory termination date of the Trust is December 31, 2046. If the
value of the Trust falls below $2,000,000 or 20% of the value of the Trust as of
the date of deposit, whichever is lower, the Trust is subject to termination as
specified in the Trust Agreement.
Organizational costs
--------------------
Organizational costs are being amortized over a period of five years using
the straight-line method.
Value per unit
--------------
Included in value per unit is undistributed net investment income per unit.
This represents income earned and accrued to each unit less amounts distributed
to the Unit Holder. The last income distribution dates were September 1 and June
1, 1998 for Unit Holders electing monthly or semi-annual distributions,
respectively, resulting in a higher value per unit for those electing
semi-annual distributions than those electing monthly distributions.
9
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
NOTES TO FINANCIAL STATEMENTS
(Concluded)
===================================
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.
NOTE 3 - BONDS SOLD OR REDEEMED
- -------------------------------
<TABLE>
<CAPTION>
Port-
folio Principal Date Net Realized
No. Description Amount Redeemed Proceeds Cost Loss
- ----- -------------------------------- --------- -------- -------- ---------- --------
Period ended September 30, 1998:
<S> <C> <C> <C> <C> <C> <C>
6 Dormitory Authority of the State $20 000 6/10/98 $19 100 $19 150 $(50)
of New York, City University
System Consolidated Revenue
Bonds, Series 1993F
(FGIC Insured)
------- ------- ------- ----
$20 000 $19 100 $19 150 $(50)
======= ======= ======= ====
</TABLE>
<TABLE>
<CAPTION>
NOTE 4 - NET ASSETS
- -------------------
<S> <C>
Cost of 10,000 units at Date of Deposit $10 360 390
Less gross underwriting commission 507 640
-----------
Net cost - initial offering price 9 852 750
Realized net loss on securities sold or redeemed (50)
Redemption of 21 units (21 284)
Unrealized market appreciation of securities 485 515
Undistributed net investment income 106 196
-----------
Net assets $10 423 127
===========
</TABLE>
10
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1998
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- ---------- ----------------------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $2 000 000 New York State 5.500% 01/01/25 01/01/21 @ 100 S.F.
Urban Development 01/01/05 @ 102 Opt.
Corporation Correc-
tional Capital
Facilities Revenue
Bonds, Series 5
(MBIA Insured)
2 AAA 2 000 000 New York State 5.500 01/01/21 No Sinking Fund
Energy Research 01/01/06 @ 102 Opt.
and Development
Authority, Gas
Facilities Revenue
Bonds, 1996 Series
(The Brooklyn
Union Gas
Company Project)
(MBIA Insured)
3 AAA 1 250 000 Dormitory Authority 5.600 08/01/37 02/01/21 @ 100 S.F.
of the State of New 08/01/07 @ 102 Opt.
York, Niagara
Lutheran Develop-
ment, Inc., D/B/A
Greenfield Health
and Rehabilitation
Center FHA-Insured
Mortgage Nursing
Home Revenue
Bonds, Series 1997
(MBIA Insured)
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds September 30, Income to
No. to Trust 1998 Trust
- ---- -------- ---------------- ------------
1 $2 020 000 $ 2 102 240 $110 000
2 2 020 000 2 115 860 110 000
3 1 262 500 1 330 938 70 000
11
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1998
(Continued)
==================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- ---------- ----------------------- --------- -------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
4 AAA $ 600 000 Dormitory Authority 5.125% 07/01/27 07/01/23 @ 100 S.F.
of the State of New 07/01/07 @ 102 Opt.
York, University
of Rochester,
Revenue Bonds,
Series 1997A
(MBIA Insured)
5 AAA 2 150 000 New York Local 5.000 04/01/21 04/01/19 @ 100 S.F.
Government 04/01/03 @ 102 Opt.
Assistance Corp-
oration (A Public
Benefit Corporation
of the State of New
York) Series 1993 C
Refunding Bonds
(MBIA Insured)
6 AAA $1 980 000 Dormitory Authority 5.000% 07/01/20 07/01/15 @ 100 S.F.
of the State of New 07/01/03 @ 100 Opt.
York, City University
System Consolidated
Revenue Bonds,
Series 1993F (FGIC
Insured)
----------
$9 980 000
==========
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds September 30, Income to
No. to Trust 1998 Trust
- ---- -------- ----------------- ------------
4 $ 582 000 $ 613 182 $ 30 750
5 2 053 250 2 165 609 107 500
6 $1 895 850 $ 1 991 286 $ 99 000
---------- ----------- --------
$9 833 600 $10 319 115 $527 250
========== =========== ========
12
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 138
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1998
(Concluded)
===================================
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings are by
Standard & Poor's. 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 or Moody's.
(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.
13
<PAGE>
GUARANTEED SERIES 139
Prospectus, Part I 9,995 Units Dated: January 28, 1999
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a
"Summary of Essential Financial Information" on the reverse hereof as of October
30, 1998 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 September 30, 1998. The second part
of this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of
obtaining tax-exempt interest income through investment in a diversified,
insured portfolio of long-term bonds, issued by or on behalf of the State of New
York and counties, municipalities, authorities or political subdivisions thereof
or issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited in
the portfolio of the Trust are sometimes referred to herein as the "Securities."
Insurance guaranteeing the payment of principal and interest on the Securities
while in the Trust has been obtained by the Trust from the Insurer as set forth
in Part II under "Insurance on the Bonds." Such insurance does not guarantee the
market value of the Securities or the Units offered hereby. The payment of
interest and the preservation of principal are, of course, dependent upon the
continuing ability of the issuers of the Bonds and any other insurer to meet
their obligations. As a result of the insurance on the Bonds, the Units are
rated "AAA" by Standard & Poor's Ratings Services, a Division of The McGraw-Hill
Companies ("Standard & Poor's").
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest on the Bonds which is exempt from federal income tax when
received by the Trust will be excludable from the federal gross income of the
Unit holders and, with certain exceptions, interest income to the Unit holders
is generally exempt from all New York State and New York City income taxes.
Capital gains, if any, are subject to tax. See Part II under "Tax Status."
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights of
Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid
price of the Securities in the Trust divided by the number of Units outstanding,
plus a sales charge determined on the basis of the maturities of the Securities
in the Trust. See "Public Offering -- Offering Price" in Part II of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do
so, intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering --
Market for Units." If such a market is not maintained, a Unit holder may be able
to dispose of his Units only through redemption at prices based upon the
aggregate bid price of the underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should retain both Parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- 1 -
798757.1
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 139
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 30, 1998
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 10,000,000
Number of Units (1): 9,995
Fractional Undivided Interest in the Trust Per Unit: 1/9,995
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $ 9,941,697.06
=================
Sponsors' Repurchase Price Per Unit: $ 994.69
Plus Sales Charge(2): 54.87
Public Offering Price Per Unit(3): $ 1,049.56
=================
Redemption Price Per Unit(4): $ 994.69
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 54.87
Weighted Average Maturity of Bonds in the Trust: 23.900 years
Evaluation Time: 2:00 p.m., New York Time, on the next day 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: $3,040
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, $1.13 under
the monthly and $.73 under the semi-annual distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount of underlying Securities.
Date of Deposit: January 22, 1998
Date of Trust Agreement: January 22, 1998
Mandatory Termination Date: December 31, 2047
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000 or 20% of the value of the Trust as of the date of
deposit, whichever is lower.
</TABLE>
2
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 139
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 30, 1998
(Continued)
<TABLE>
<CAPTION>
Monthly Semi-annual
<S> <C> <C>
P Estimated Annual Interest Income: $49.72 $49.72
Less Annual Premium on Portfolio Insurance .30 .30
E Less Estimated Annual Expenses 1.91 1.41
Less Organizational Costs .40 .40
------ ------
R Estimated Net Annual Interest Income: $47.11 $47.61
====== ======
U Estimated Interest Distribution: $ 3.93 $23.81
N Estimated Current Return Based on Public
Offering Price (5): 4.49% 4.54%
I
Estimated Long-Term Return Based
T on Public Offering Price (6): 4.40% 4.45%
Estimated Daily Rate of Net Interest
Accrual: $.13086 $.13225
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
</TABLE>
- -------------------
1. The number of units is expressed in whole numbers with no adjustment for
fractional units.
2. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
3. Plus accrued interest to November 4, 1998, the expected date of
settlement, of $2.49 monthly and $22.36 semi-annually.
4. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
5. Estimated Current Return is calculated by dividing the estimated net
annual interest income received in cash per Unit by the Public Offering
Price. Interest income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator, and with the redemption,
maturity, exchange or sale of Securities. This calculation, which includes
cash income accrual only, does not include discount accretion on original
issue discount bonds or on zero coupon bonds or premium amortization on
bonds purchased at a premium. See "Tax Status" and "Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part II of this
Prospectus.
6. Estimated Long-Term Return is calculated by using a formula that takes
into account the yields (including accretion of discounts and amortization
of premiums) of the individual Bonds in the Trust's portfolio, weighted to
reflect the market value and time to maturity (or, in certain cases, to
earlier call date) of such Bonds, adjusted to reflect the Public Offering
Price (including sales charge and expenses) per Unit. See "Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in Part II
of this Prospectus.
3
<PAGE>
Portfolio Information
On September 30, 1998, the bid side valuation of 16.0% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount from
par and 84.0% 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
On September 30, 1998, the Portfolio consisted of six 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. 16.0% of the aggregate principal amount of
the Bonds in the Portfolio are general obligations of the governmental entities
issuing them and are backed by the taxing power thereof. 84.0% 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: General Obligation, one
(16.0%); Revenue: Health Care, two (31.5%); Higher Education, one (10.0%);
Transportation, one (20.0%); and Special Tax, one (22.5%). The Trust is deemed
to be concentrated in the Health Care Bond category.1 All of the Bonds in the
Portfolio are original issue discount bonds. Five issues (84.0%) were rated AAA
and one issue (16.0%) was rated A 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.
Tax Status
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
- -- Portfolio" in Part II of this Prospectus.
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 is, however,
includable in gross income for federal, state and local income tax purposes and
will be capital gain (or loss) assuming that the Unit is held as a capital
asset. Such gain (or loss) may be long- or short-term depending on the facts and
circumstances. Such gain (or loss) does not include any amount received in
respect of accrued interest, accrued original issue discount or accrued market
discount (which is taxable at ordinary income tax rates). Bonds selling at a
market discount tend to increase in market value as they approach maturity when
the principal amount is payable, thus increasing the potential for taxable gain
(or reducing the potential for loss) on their redemption, maturity or sale.
Capital gains realized by noncorporate taxpayers on the sale or other
disposition of Bonds or Units will be taxed at a maximum federal income tax rate
of 20%, if the asset has been held for more than one year, while ordinary income
received by individuals will be taxed at a maximum federal income tax rate of
39.6%.
- -------------------
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part II
of this Prospectus.
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 139:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 139, including the tax-exempt bond
portfolio, as of September 30, 1998, and the related statements of operations
and changes in net assets for the period from January 22, 1998 (initial date of
deposit) to September 30, 1998. These financial statements are the
responsibility of the Trustee. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1998, 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 audit provides 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 139 as of September 30, 1998, and the results of its
operations and changes in net assets the period from January 22, 1998 (initial
date of deposit) to September 30, 1998 in conformity with generally accepted
accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 30, 1998
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 139
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1998
===================================
<TABLE>
<S> <C>
ASSETS:
INVESTMENTS IN SECURITIES, at market value (cost $9,914,375) (Note 1)........................... $10 030 360
ACCRUED INTEREST RECEIVABLE..................................................................... 133 261
ORGANIZATIONAL COSTS, net of accumulated amortization of $2,683
(Note 1)...................................................................................... 17 443
-----------
Total trust property...................................................................... 10 181 064
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES................................................... 47 238
-----------
NET ASSETS...................................................................................... $10 133 826
===========
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
------------ ------------ -----
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS........................................ $5 688 145 $4 337 073 $10 025 218
UNDISTRIBUTED NET INVESTMENT
INCOME........................................... 31 380 77 228 108 608
---------- ---------- -----------
Total value................................ $5 719 525 $4 414 301 $10 133 826
========== ========== ===========
UNITS OUTSTANDING.................................... 5 671 4 324 9 995
========== ========== ===========
VALUE PER UNIT....................................... $ 1 008.56 $ 1 020.88
========== ==========
</TABLE>
See Notes to Financial Statements
6
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 139
STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 22, 1998 (INITIAL
DATE OF DEPOSIT) TO SEPTEMBER 30, 1998
======================================
<TABLE>
<S> <C>
INVESTMENT INCOME - INTEREST................................................................ $332 907
--------
EXPENSES:
Trustee fees............................................................................ 6 472
Evaluation fees......................................................................... 614
Insurance premiums...................................................................... 2 086
Sponsors' advisory fees................................................................. 1 750
Auditors' fees.......................................................................... 1 800
Amortization of organizational costs (Note 1)........................................... 2 683
--------
Total expenses.......................................................... 15 405
--------
NET INVESTMENT INCOME....................................................................... 317 502
UNREALIZED MARKET APPRECIATION (Note 1)..................................................... 115 985
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................................................................ $433 487
========
</TABLE>
See Notes to Financial Statements
7
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 139
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM JANUARY 22, 1998 (INITIAL
DATE OF DEPOSIT) TO SEPTEMBER 30, 1998
======================================
<TABLE>
<CAPTION>
OPERATIONS:
<S> <C>
Net investment income............................................................... $ 317 502
Unrealized market appreciation (Note 1)............................................. 115 985
-------------
Net increase in net assets resulting from operations....................... 433 487
-------------
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income............................................................... (208 894)
-------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 5 units at September 30, 1998......................................... (5 142)
-------------
NET INCREASE IN NET ASSETS.............................................................. 219 451
NET ASSETS:
Beginning of period................................................................. 9 914 375
-------------
End of period....................................................................... $ 10 133 826
=============
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan.................................................................... $ 25.90
Semi-annual plan................................................................ $ 14.27
</TABLE>
See Notes to Financial Statements
8
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 139
NOTES TO FINANCIAL STATEMENTS
===================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on the 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.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Termination of Trust
The mandatory termination date of the Trust is December 31, 2047. If
the value of the Trust falls below $2,000,000 or 20% of the value of the Trust
as of the date of deposit, whichever is lower, the Trust is subject to
termination as specified in the Trust Agreement.
Organizational costs
Organizational costs are being amortized over a period of five years
using the straight-line method.
Value per unit
Included in value per unit is undistributed net investment income per
unit. This represents income earned and accrued to each unit less amounts
distributed to the Unit Holder. The last income distribution dates were
September 1 and June 1, 1998 for Unit Holders electing monthly or semi-annual
distributions, respectively, resulting in a higher value per unit for those
electing semi-annual distributions than those electing monthly distributions.
9
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 139
NOTES TO FINANCIAL STATEMENTS
===================================
(Concluded)
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.
<TABLE>
<CAPTION>
NOTE 3 - NET ASSETS
<S> <C>
Cost of 10,000 units at Date of Deposit $ 10 425 185
Less gross underwriting commission 510 810
--------------
Net cost - initial offering price 9 914 375
Redemption of 5 units (5 142)
Unrealized market appreciation of securities 115 985
Undistributed net investment income 108 608
--------------
Net assets $ 10 133 826
==============
</TABLE>
10
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 139
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1998
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- ---------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $ 2 150 000 Dormitory Authority 5.125% 02/15/21 02/15/17 @ 100 S.F.
of the State of New 02/15/06 @ 102 Opt.
York Mental Health
Services Facilities
Improvement Reve-
nue Bonds, Series
1996 C (MBIA
Insured)
2 AAA 1 000 000 Dormitory Authority 5.125 07/01/27 07/01/25 @ 100 S.F.
of the State of 01/01/08 @ 102 Opt.
New York City
University System
Consolidated Third
General Resolution
Revenue Bonds, Series
1997 Series 1
(MBIA Insured)
3 AAA 1 000 000 Dormitory Authority 5.100 02/01/28 02/01/10 @ 100 Ant.
of the State of 02/01/08 @ 102 Opt.
New York, Eger
Health Care Center
of Staten Island
FHA-Insured
Mortgage Nursing
Home Revenue
Bonds, Series 1998
</TABLE>
Market Value Annual
Cost of as of Interest
Bonds September 30, Income to
to Trust 1998 Trust
-------- ----------------- ------------
$2 171 500 $ 2 190 205 $110 188
1 010 000 1 022 750 51 250
1 005 000 1 009 350 51 000
11
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 139
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1998
(Continued)
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- ---------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
4 AAA $ 2 250 000 New York Local 5.000% 04/01/21 04/01/20 @ 100 S.F.
Government Assist- 04/01/08 @ 101 Opt.
ance Corporation
(A Public Benefit
Corporation of the
State of New York)
Series 1997 B
Refunding Bonds
(MBIA Insured)
5 AAA 2 000 000 Metropolitan Trans- 5.000 07/01/20 07/01/18 @ 100 S.F.
portation Authority 07/01/07 @ 102 Opt.
Transit Facilities
Revenue Bonds,
Series 1997 B-2
(MBIA Insured)
</TABLE>
Market Value Annual
Cost of as of Interest
Bonds September 30, Income to
to Trust 1998 Trust
-------- ----------------- ------------
$2 248 875 $ 2 279 835 $112 500
1 999 000 2 026 060 100 000
12
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 139
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1998
(Concluded)
===================================
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- ---------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
6 A $ 1 600 000 Commonwealth of 4.500% 07/01/23 07/01/19 @ 100 S.F.
Puerto Rico Public 07/01/08 @ 101 Opt.
Improvement
Refunding Bonds,
Series 1998
(General Obliga-
tion Bonds)
-----------
$10 000 000
===========
</TABLE>
Market Value Annual
Cost of as of Interest
Bonds September 30, Income to
to Trust 1998 Trust
-------- ----------------- ------------
$1 480 000 $ 1 502 160 $ 72 000
---------- ----------- --------
$9 914 375 $10 030 360 $496 938
========== =========== ========
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings are
by Standard & Poor's. 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 or Moody's.
(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.
13
<PAGE>
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series
PROSPECTUS, Part II
Note: Part II of this Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
Organization
The Trust is one of a Series of similar but separate unit investment
trusts. Each Trust was created under the laws of the State of New York pursuant
to a Trust Indenture and Agreement (the "Trust Agreement"), dated the Date of
Deposit as set forth in "Summary of Essential Financial Information" in Part I
of this Prospectus, among the Sponsors, the Trustee and the Evaluator. The Bank
of New York acts as successor Trustee of Series 1 through 22 and as Trustee of
Series 23 and subsequent Series. Muller Data Corporation acts as successor
Evaluator for Series 1 through 90 and as Evaluator for Series 91 and subsequent
Series. Glickenhaus & Co. and Lebenthal & Co., Inc. act as co-Sponsors for all
Series (the "Sponsors").
On the date of this Prospectus, each Unit represented the fractional
undivided interest in the Trust set forth in Part I of this Prospectus under
"Summary of Essential Financial Information." Thereafter, if any Units are
redeemed by the Trustee, the fractional undivided interest in the Trust
represented by each unredeemed Unit will increase, although the actual interest
in the Trust represented by each such Unit will remain essentially the same.
Units will remain outstanding until redeemed upon tender to the Trustee by any
Unit holder, which may include the Sponsors, or until the termination of the
Trust Agreement for the related Trust. See "Rights of Unit Holders--Redemption."
On the Date of Deposit for each Trust, the Sponsors deposited with the
Trustee obligations or contracts for the purchase of such obligations (the
"Bonds" or "Securities"). Certain of the Bonds may have been purchased at prices
which resulted in original issue discount, market discount or the inclusion of
zero coupon bonds. Bonds selling at market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for gain. Any gain other than any earned original issue
discount will be taxable and will not be realized until maturity, redemption or
sale of the underlying Bonds or Units.
Objectives
The objective of the Trust is to obtain tax-exempt interest income
through an investment in a fixed, insured portfolio consisting primarily of
various long-term municipal bonds. No assurance can be given that the Trust's
objectives will be achieved because these objectives are subject to the
continuing ability of the respective issuers of the bonds in the Portfolio to
meet their obligations and of the Insurer to meet its obligations under the
insurance. In addition, an investment in the Trust can be affected by interest
rate fluctuations.
279831.15
-1-
<PAGE>
Series 6 through 30 and Series 31 and subsequent Series have obtained
insurance guaranteeing the payment of principal and interest on the Bonds in
each respective Trust from MBIA Inc. and MBIA Insurance Corporation ("MBIA
Corp."), respectively (MBIA Inc. and MBIA Corp. are collectively referred to
herein as the "Insurer"). Insurance obtained by the Trust applies only while
Bonds are retained in the Trust. Pursuant to irrevocable commitments of MBIA
Inc. and MBIA Corp., however, in the event of a sale of a Bond from the Trust
the Trustee has the right to obtain permanent insurance for such Bond upon the
payment of a single predetermined insurance premium from the proceeds of the
sale of such Bond. It is expected that the Trustee will exercise the right to
obtain permanent insurance for a Bond in such Series upon instruction from the
Sponsors whenever the value of that Bond insured to its maturity less the
applicable permanent insurance premium and the related custodial fee exceeds the
value of the Bond without such insurance. Insurance relates only to the payment
of principal and interest on the Bonds in the Trust but neither covers the
nonpayment of any redemption premium on the Bonds nor guarantees the market
value of the Units. Certain Bonds in the Trust may also be insured under
insurance obtained by the issuers of such Bonds or third parties ("Pre-insured
Bonds"). As a result of the insurance, Moody's Investors Service, Inc.
("Moody's") has assigned a rating of "Aaa" to all of the Bonds in the Trust, as
insured, and Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's"), has assigned a rating of "AAA" to the
Units and Bonds while in the Trust. No representation is made as to any
insurer's ability to meet its commitments. Insurance is not a substitute for the
basic credit of an issuer, but supplements the existing credit and provides
additional security therefor. A single or annual premium is paid by the issuer
or any other party for its insurance on Pre-insured Bonds, and a monthly premium
is paid by the Trust for the insurance it obtains from the Insurer on the Bonds
in the Trust that are not pre-insured by such Insurer. No premium will be paid
by the Trust on Bonds pre-insured by MBIA Inc. and MBIA Corp. See "Insurance on
the Bonds."
Portfolio
In view of the Trust's objectives, the following factors, among
others, were considered in selecting the Bonds: (1) all the Bonds are
obligations of the State of New York and counties, municipalities, authorities
or political subdivisions thereof or issued by certain United States territories
or possessions, including Puerto Rico, and their public authorities so that the
interest on them will be exempt from Federal, New York State and New York City
income tax under existing law; (2) the Bonds are varied as to purpose of issue;
(3) in the opinion of the Sponsors, the Bonds are fairly valued relative to
other bonds of comparable quality and maturity; and (4) availability of
insurance for the payment of principal and interest on the Bonds. Subsequent to
the Date of Deposit, a Bond may cease to be rated or its rating may be reduced.
Neither event requires an elimination of such Bond from the portfolio, but such
an event may be considered in the Sponsors' determination to direct the Trustee
to dispose of the Bonds. See "Sponsors-- Responsibility."
An investment in Units of the Trust should be made with an
understanding of the risks entailed in investments in fixed-rate bonds,
including the risk that the value of such bonds (and, therefore, of the Units)
will decline with increases in interest rates. Inflation and recession, as well
as measures implemented to address these and other economic problems, contribute
to fluctuations in interest rates and the value of fixed-rate bonds generally.
The Sponsors cannot predict future economic policies or their
279831.15
-2-
<PAGE>
consequences nor, therefore, can they predict the course or extent of such
fluctuations in the future.
Special Factors Affecting New York
The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
connection with the issuance of New York State and New York City municipal
bonds. The Sponsors have not independently verified this information.
Economic Trends. Over the long term, the State of New York (the
"State") and the City of New York (the "City") face serious potential economic
problems. The City accounts for approximately 41% of the State's population and
personal income, and the City's financial health affects the State in numerous
ways. The State historically has been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic affluence. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax
burden relative to other states. The State and its localities have used these
taxes to develop and maintain their transportation networks, public schools and
colleges, public health systems, other social services and recreational
facilities. Despite these benefits, the burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.4
million, is an international center of business and culture. Its non-
manufacturing economy is broadly based, with the banking and securities, life
insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. The City's manufacturing activity is conducted primarily in apparel
and printing.
For each of the 1981 through 1998 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
279831.15
-3-
<PAGE>
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 1999 fiscal year, before discretionary
transfers, and budget gaps for each of the 2000, 2001 and 2002 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 of New York (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 State budgets will be adopted by the
April 1 statutory deadline, or interim appropriations 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 1999 through 2002 fiscal
years (the "1999-2002 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 financing program for
fiscal years 1999 through 2002 contemplates the issuance of $5.2 billion of
general obligation bonds and $5.4 billion of bonds to be issued by the New York
City Transitional Finance Authority (the "Finance Authority") to finance City
capital projects. The Finance Authority was created as part of the City's effort
to assist in keeping the City's indebtedness within the forecast level of the
constitutional restrictions on the amount of debt the City is authorized to
incur. In addition, the City issues revenue and tax anticipation notes to
finance its seasonal working capital requirements. The success of projected
public sales of City bonds and notes, New York City Municipal Water Finance
Authority ("Water Authority") bonds and Finance Authority bonds will be subject
to prevailing market conditions. The City's planned capital and operating
expenditures are dependent upon the sale of its general obligation bonds and
notes, and the Water Authority and Finance Authority bonds. Future developments
concerning the City and public discussion of such developments, as well as
prevailing market conditions, may affect the market for outstanding City general
obligation bonds and notes.
For the 1998 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 1998
fiscal year is the eighteenth year that the City has achieved an
279831.15
-4-
<PAGE>
operating surplus, before discretionary and other transfers, and balanced
operating results, after discretionary and other transfers.
On November 18, 1998, the City released the Financial Plan for the
1999 through 2002 fiscal years, which relates to the City and certain entities
which receive funds from the City. The Financial Plan is a modification to the
financial plan submitted to the Control Board on June 26, 1998 (the "June
Financial Plan"). The Financial Plan projects revenues and expenditures for the
1999 fiscal year balanced in accordance with GAAP, and projects gaps of $2.2
billion and $2.4 billion for the 2000 through 2002 fiscal years, respectively,
after implementation of a gap closing program to reduce agency expenditures by
$200 million in the 1999 fiscal year and approximately $80 million in each of
fiscal years 2000 through 2002.
Changes since the June Financial Plan include: (i) an increase in
projected tax revenues of $288 million and $8 million in fiscal years 1999 and
2000, respectively, and a decrease in projected tax revenues of $23 million and
$66 million in fiscal years 2001 and 2002, respectively; (ii) an increase in
planned expenditures for health insurance of approximately $60 million in each
of fiscal years 1999 through 2002; (iii) a decrease in projected pension
expenditures due to higher than planned increases in the value of the assets of
the retirement systems of $67 million, $171 million, $264 million and $372
million in the fiscal years 1999 through 2002, respectively; (iv) other agency
spending increases of $76 million, $101 million, $78 million, and $70 million in
fiscal years 1999 through 2002, respectively; and (v) an increase in agency
expenditures of $227 million, $295 million, $295 million and $294 million in
fiscal years 1999 through 2002, respectively, due to a reduction in the agency
gap closing program.
The 1999-2002 Financial Plan includes a proposed discretionary
transfer in the 1999 fiscal year of $465 million to pay debt service due in
fiscal year 2000. In addition, the Financial Plan reflects enacted and proposed
tax reduction programs totaling $429 million, $604 million and $606 million in
fiscal years 2000 through 2002, respectively, including the elimination of the
city sales tax on all clothing as of December 1, 1999, the extension of current
tax reductions for owners of cooperative and condominium apartments starting in
fiscal year 2000 and a personal income tax credit for child care and for
resident holders of Subchapter S corporations starting in fiscal year 2000,
which are subject to State legislative approval, and reduction of the commercial
rent tax commencing in fiscal year 2000.
The Financial Plan assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999, and which is projected to provide
revenue of $183 million, $524 million and $544 million in the 2000, 2001 and
2002 fiscal years, respectively; and (ii) collection of the projected rent
payments for the City's airports, totaling $6 million, $365 million, $155
million and $185 million in the 1999 through 2002 fiscal years, respectively, a
substantial portion of which may depend on the successful completion of
negotiations with The Port Authority of New York and New Jersey (the "Port
Authority") or the enforcement of the city's rights under the existing leases
through pending legal actions. The Financial Plan provides no additional wage
increases for City employees after their contracts expire in fiscal years 2000
and 2001. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and political factors which
could have a material effect on the City.
279831.15
-5-
<PAGE>
In January, the Mayor is expected to publish a Modification (the
"January Modification") to the Financial Plan for the City's 1999 through 2003
fiscal years and a preliminary budget for the City's fiscal year 2000. The
January Modification will include changes since the Financial Plan and the
City's program to address the currently forecast $2.2 billion gap in fiscal year
2000. As in prior years, the City's gap-closing program could include a program
to substantially reduce projected agency spending and City proposals for
increased Federal and State aid and other non-tax revenues.
The 1998 modification of the City's financial plan and the 1999- 2002
Financial Plan include a proposed discretionary transfer in the 1998 fiscal year
of approximately $2.0 billion to pay debt service due in the 1999 fiscal year,
and a proposed discretionary transfer in the 1999 fiscal year of $416 million to
pay debt service due in fiscal year 2000, included in the Budget Stabilization
Accounts for the 1998 and 1999 fiscal years, respectively. In addition, the
Financial Plan reflects proposed tax reduction programs totaling $237 million,
$537 million, $657 million and $666 million in fiscal years 1999 through 2002,
respectively, including the elimination of the City sales tax on all clothing as
of December 1, 1999, a City-funded acceleration of the State funded personal
income tax reduction for the 1999 through 2001 fiscal years, the extension of
current tax reductions for owners of cooperative and condominium apartments
starting in fiscal year 2000 and a personal income tax credit for child care and
for resident holders of Subchapter S corporations, which are subject to State
legislative approval, and reduction of the commercial rent tax commencing in
fiscal year 2000.
On June 5, 1998, the City Council adopted a budget which reallocated
expenditures from those provided in the Executive Budget in the amount of $409
million. The re-allocated expenditures, which include $116 million from the
Budget Stabilization Account, $82 million from debt service, $45 million from
pension contributions, $54 million from social services spending and $112
million from other spending, were re-allocated to uses set forth in the City
Council's adopted budget. Such uses include a revised tax reduction program at a
revenue cost in the 1999 fiscal year of $45 million, additional expenditures for
various programs of $199 million and provision of $165 million to retire high
interest debt. The revised tax reduction program in the City Council's adopted
budget assumes the expiration of the 12.5% personal income tax surcharge, rather
than the implementation of the personal income tax reduction program proposed in
the Executive Budget. The changes reflected in the City Council's adopted budget
would increase the gaps forecast between revenues and expenditures in the future
years of the Financial Plan.
On June 5, 1998, in accordance with the City Charter, the Mayor
certified to the City Council revised estimates of the City's revenues (other
than property tax) for fiscal year 1999. Consistent with this certification, the
property tax levy was estimated by the Mayor to require an increase to realize
sufficient revenue from this source to produce a balanced budget within
generally accepted accounting principles. On June 8, 1998, the City Council
adopted a property tax levy that was $237.7 million lower than the levy
estimated to be required by the Mayor. The City Council, however, maintained
that the revenue to be derived from the levy it adopted would be sufficient to
achieve a balanced budget because the property tax reserve for uncollectibles
could be reduced. Property tax bills for fiscal year 1999 are expected to be
mailed in the near future by the City's Department of Finance at the rates
adopted by the City Council for fiscal year 1998, subject to later adjustment.
279831.15
-6-
<PAGE>
On July 10, 1995, Standard & Poor's revised its rating of City bonds
downward to BBB+. On February 3, 1998, Standard & Poor's placed its BBB+ rating
of City bonds on CreditWatch with positive implications. Moody's rating of City
bonds was revised in February 1998 to A3 from Baa1. Moody's, Standard & Poor's
and Fitch currently rate the City's outstanding general obligation bonds A3,
BBB+ and A-, respectively.
New York State and its Authorities. The State Financial Plan for the
1998-1999 fiscal year projects balance on a cash basis for the 1998-1999 fiscal
year, as modified on July 30, 1998, with a closing balance in the General Fund
of $1.67 billion. The State Financial Plan contains projections of a potential
imbalance in the 1999-2000 fiscal year of $1.3 billion, assuming implementation
of unspecified efficiency actions, the receipt of funds from the tobacco
settlement and the application of certain reserves established in the 1998-1999
State Financial Plan. the Executive Budget submitted in February 1998 contained
projections at that time of a potential imbalance in the 2000-2001 fiscal year
of $3.72 billion, assuming implementation of unspecified efficiency initiatives
and other actions in the 2000-2001 fiscal year.
The 1999-2002 Financial Plan is based on numerous assumptions,
including the condition of the City's and the region's economy and a modest
employment recovery and the concomitant receipt of economically sensitive tax
revenues in the amounts projected. The 1999-2002 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 1999 through 2002 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 State 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. Certain of these assumptions have been questioned by the City
Comptroller and other public officials.
The Legislature passed a State budget for the 1998-1999 fiscal year on
April 18, 1998, and on April 26, 1998 the Governor vetoed certain of the
increased spending in the State budget passed by the Legislature. The
Legislature did not override any of the Governor's vetoes. The State Financial
Plan for the 1998-1999 fiscal year, as modified on July 30, 1998, projects
balance on a cash basis for the 1998-1999 fiscal year, with a closing balance in
the General Fund of $1.67 billion. The State Financial Plan contains projections
of a potential imbalance in the 1999-2000 fiscal year of $1.3 billion, assuming
implementation of $600 million of unspecified efficiency actions, the receipt of
$250 million in funds from the tobacco settlement and the application of certain
reserves established in the 1998- 1999 State Financial Plan. The Executive
Budget submitted in February 1998
279831.15
-7-
<PAGE>
contained projections at that time of a potential imbalance in the 2000-2001
fiscal year of $3.72 billion, assuming implementation of $800 million of
unspecified efficiency initiatives in the 2000-2001 fiscal year and $250 million
in funds from the tobacco settlement. The State Financial Plan for the 1998-1999
fiscal year includes multi-year tax reductions and significant increases in
spending which will affect the 2000-2001 fiscal year. The various elements of
the State and local tax and assessments reductions enacted during the last
several fiscal years will reduce projected revenues by more than $4 billion in
the 2002-2003 fiscal year as measured from the current 1998-1999 base.
On July 23, 1998, the New York State Comptroller issued a report which
noted that a signicant cause for concern is the budget gaps in the 1999- 2000
and 2000-2001 fiscal years, which the State Comptroller projected at $1.8
billion and $5.5 billion, respectively, after excluding the uncertain receipt by
State of $250 million of funds from the tobacco settlement assumed for each of
such fiscal years, as well as the unspecified actions assumed in the State's
projections. The State Comptroller also stated that if the securities industry
or economy slows, the size of the gaps would increase.
Standard & Poor's rates the State's general obligation bonds A, and
Moody's rates the State's general obligation bonds A2. On August 28, 1997,
Standard & Poor's revised its rating on the State's general obligation bonds
from A- to A.
Litigation. The court actions in which the State is a defendant
generally involve State programs and miscellaneous tort, real property, and
contract claims. While the ultimate outcome and fiscal impact, if any, on the
State of those proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon the
State's ability to carry out the 1999-2002 Financial Plan.
The City has estimated that its potential future liability on account
of outstanding claims against it as of June 30, 1998 amounted to approximately
$3.5 billion.
General Considerations
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with their terms
and the proceeds from such events will be distributed to Unit holders and will
not be reinvested, no assurance can be given that the Trust will retain for any
length of time its present size and composition. The inclusion of unrated Bonds
in certain Series of the Trust may result in less flexibility in their disposal
and a loss to the Trust upon their disposition. Except as described in footnotes
to "Summary of Essential Financial Information" in Part I of this Prospectus,
interest accrues to the benefit of Unit holders commencing with the expected
date of settlement for purchase of the Units. Neither the Sponsors nor the
Trustee shall be liable in any way for any default, failure or defect in any
Security.
The following paragraphs discuss the characteristics of the Bonds in
the Trust and of certain types of issuers of the Bonds in the Trust. See
"Special Factors Concerning the Portfolio" in Part I of this Prospectus. These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payments of principal of
and interest on Bonds held in the portfolio of the Trust or which may adversely
affect the ratings of such Bonds. Because of the insurance obtained
279831.15
-8-
<PAGE>
by the Sponsors or by the issuers, however, such changes should not adversely
affect the Trust's ultimate receipt of principal and interest, the Standard &
Poor's or Moody's ratings of the Bonds in the portfolio, or the Standard &
Poor's rating of the Units of the Trust. An investment in Units of the Trust
should be made with an understanding of the risks that such an investment may
entail, certain of which are described below. Unit holders may obtain additional
information concerning a particular Bond by requesting an official statement
from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest. The
taxing power of any governmental entity may be limited, however, by provisions
of state constitutions or laws, and an entity's credit will depend on many
factors, including potential erosion of the tax base due to population declines,
natural disasters, declines in the state's industrial base or inability to
attract new industries; economic limits on the ability to tax without eroding
the tax base; state legislative proposals or voter initiatives to limit ad
valorem real property taxes; and the extent to which the entity relies on
Federal or state aid, access to capital markets or other factors beyond the
state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease purchase
obligations as a means for financing the acquisition of capital projects (e.g.,
buildings or equipment, among other things). Such obligations are often made
subject to annual appropriations. Certain Series of the Trust may contain Bonds
in the portfolio that are, in whole or in part, subject to and dependent upon
(1) the governmental entity making appropriations from time to time or (2) the
continued existence of special temporary taxes which require legislative action
for their reimposition. The availability of any appropriation is subject to the
willingness of the governmental entity to continue to make such special
appropriations or to reimpose such special taxes. The obligation to make lease
payments exists only to the extent of the monies available to the governmental
entity therefor, and no liability is incurred by the governmental entity beyond
the monies so appropriated. Subject to the foregoing, once an annual
appropriation is made, the governmental entity's obligation to make lease rental
payments is absolute and unconditional without setoff or counterclaim,
regardless of contingencies, whether or not a given project is completed or used
by the governmental entity and notwithstanding any circumstances or occurrences
which might arise. In the event of non-appropriation, certificate holders' or
bondowners' sole remedy (absent credit enhancement) generally is limited to
repossession of the collateral for resale or releasing, and the obligation of
the governmental lessee is not backed by a pledge of the general credit of the
governmental lessee. In the event of non-appropriation, the Sponsors may
instruct the Trustee to sell such Bonds.
Moral Obligation Bonds. Certain Series of the Trust may contain Bonds
in the portfolio that are secured by pledged revenues and additionally by the
so-called "moral obligation" of the State or a local governmental body. Should
the pledged revenues prove insufficient, the payment of such Bonds is not a
legal obligation of the State or local government, and is subject to its
willingness to appropriate funds therefor.
279831.15
-9-
<PAGE>
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue bonds".
Under the Internal Revenue Code of 1986, as amended (the "Code") (and under
similar provisions of the prior tax law), "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting, certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. If any portion of the
Bond proceeds is not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of Zero Coupon Bonds (see "Original Issue Discount and Zero Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds may
consist of obligations of state and local housing authorities whose revenues are
primarily derived from mortgage loans to housing projects for low to moderate
income families. Since such obligations are not general obligations of a
particular state or municipality and are generally payable primarily or solely
from rents and other fees, adverse economic developments including failure or
inability to increase rentals, fluctuations of interest rates and increasing
construction and operating costs may reduce revenues available to pay existing
obligations.
The housing bonds in the Trust, despite their optional redemption
provisions which generally do not take effect until ten years after the original
issuance dates of such Bonds (often referred to as "ten year call protection"),
do contain provisions which require the issuer to redeem such obligations at par
from unused proceeds of the issue within a stated period. In recent periods of
declining interest rates there have been increased redemptions of housing bonds
pursuant to such redemption provisions. In addition, the housing bonds in the
Trust are also subject to mandatory redemption in part at par at any time that
voluntary or involuntary prepayments of principal on the underlying mortgages
are made to the trustee for such Bonds or that the mortgages are sold by the
bond issuer. Prepayments of principal tend to be greater in periods of declining
interest rates; it is possible that such prepayments could be sufficient to
cause a housing bond to be redeemed substantially prior to its stated maturity
date, earliest call date or sinking fund redemption date.
Public Power Revenue Bonds. General problems of the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and operation
of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials and
the disposal of radioactive waste; and the effects
279831.15
-10-
<PAGE>
of energy conservation. Certain Bonds may have been issued in connection with
the financing of nuclear generating facilities. In view of recent developments
in connection with such facilities, legislative and administrative actions have
been taken and proposed relating to the development and operation of nuclear
generating facilities. The Sponsors are unable to predict whether any such
actions or whether any such proposals or litigation, if enacted or instituted,
will have an adverse impact on the revenues available to pay the debt service on
the Bonds in the portfolio issued to finance such nuclear projects.
Each of the problems referred to above could adversely affect the
ability of the issuers of public power revenue bonds to make payments of
principal of and/or interest on such bonds. Certain municipal utilities or
agencies may have entered into contractual arrangements with investor-owned
utilities and large industrial users and consequently may be dependent in
varying degrees on the performance of such contracts for payment of bond debt
service.
Health Care Revenue Bonds. Some of the aggregate principal amount of
Bonds may consist of hospital revenue bonds. Ratings of hospital bonds are often
initially based on feasibility studies which contain projections of occupancy
levels, revenues and expenses. Actual experience may vary considerably from such
projections. A hospital's gross receipts and net income will be affected by
future events and conditions including, among other things, demand for hospital
services and the ability of the hospital to provide them, physicians' confidence
in hospital management capability, economic developments in the service area,
competition, actions by insurers and governmental agencies and the increased
cost and possible unavailability of malpractice insurance. Additionally, a major
portion of hospital revenue typically is derived from federal or state programs
such as Medicare and Medicaid which have been revised substantially in recent
years and which are undergoing further review at the state and federal level.
Proposals for significant changes in the health care system and the
present programs for third party payment of health care costs are under
consideration in Congress and many states. Future legislation or changes in the
areas noted above, among other things, would affect all hospitals to varying
degrees and, accordingly, any adverse change in these areas may affect the
ability of such issuers to make payment of principal and interest on such bonds.
Higher Education Revenue Bonds. Higher education revenue bonds include
debt of state and private colleges, universities and systems, and parental and
student loan obligations. The ability of universities and colleges to meet their
obligations is dependent upon various factors, including the revenues, costs and
enrollment levels of the institutions. In addition, their ability may be
affected by declines in Federal, state and alumni financial support,
fluctuations in interest rates and construction costs, increased maintenance and
energy costs, failure or inability to raise tuition or room charges and adverse
results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the pollution
control facilities category include securities issued on behalf of a private
279831.15
-11-
<PAGE>
corporation,* including utilities, to provide facilities for the treatment of
air, water and solid waste pollution. Repayment of these bonds is dependent
upon income from the specific pollution control facility and/or the financial
condition of the project corporation. See also "Private Activity Bonds."
Other Utility Revenue Bonds. Bonds in this category include securities
issued to finance natural gas supply, distribution and transmission facilities,
public water supply, treatment and distribution facilities, and sewage
collection, treatment and disposal facilities. Repayment of these bonds is
dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this
category include securities issued to finance facilities for removal and
disposal of solid municipal waste. Repayment of these bonds is dependent on
factors which may include revenues from appropriations from a governmental
entity, the financial condition of the private project corporation and revenues
derived from the collection of charges for disposal of solid waste. Repayment of
resource recovery bonds may also be dependent to various degrees on revenues
from the sale of electric energy or steam. Bonds in this category may be subject
to mandatory redemption in the event of project non-completion, if the project
is rendered uneconomical or if it is considered an environmental hazard.
Transportation Revenue Bonds. Bonds in this category include bonds
issued for airport facilities, bridges, turnpikes, port authorities, railroad
systems or mass transit systems. Generally, airport facility revenue bonds are
payable from and secured by the revenues derived from the ownership and
operation of a particular airport. Payment on other transportation bonds is
often dependent primarily or solely on revenues from financed facilities,
including user fees, charges, tolls and rents. Such revenues may be adversely
affected by increased construction and maintenance costs or taxes, decreased
use, competition from alternative facilities, scarcity of fuel, reduction or
loss of rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on Federal, state or
local assistance including motor fuel and motor vehicle taxes, fees and licenses
and, therefore, may be subject to fluctuations in such assistance.
Special Tax Revenue Bonds. Bonds in this category are bonds secured
primarily or solely by receipt of certain state or local taxes, including sales
and use taxes or excise taxes. Consequently, such bonds may be subject to
fluctuations in the collection of such taxes. Such bonds do not include tax
increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also contain
revenue bonds which are payable from and secured primarily or solely by revenues
from the ownership and operation of particular facilities, such as correctional
facilities, parking facilities, convention centers, arenas,
- --------
* For the purposes of the description of users of facilities, all
references to "corporations" shall be deemed to include any other
nongovernmental person or entity.
279831.15
-12-
<PAGE>
museums and other facilities owned or used by a charitable entity. Payment on
bonds related to such facilities is, therefore, primarily or solely dependent on
revenues from such projects, including user fees, charges and rents. Such
revenues may be affected adversely by increased construction and maintenance
costs or taxes, decreased use, competition from alternative facilities,
reduction or loss of rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are secured by
direct obligations of the U.S. Government or, in some cases, obligations
guaranteed by the U.S. Government, placed in an escrow account maintained by an
independent trustee until maturity or a predetermined redemption date. In a few
isolated instances to date, bonds which were thought to be escrowed to maturity
have been called for redemption prior to maturity.
Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations and/or
revenue bonds of issuers located in Puerto Rico which will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is fully
integrated with that of the mainland United States. During fiscal 1997,
approximately 88% of Puerto Rico's exports were to the United States mainland,
which was also the source of 62% of Puerto Rico's imports. In fiscal 1997,
Puerto Rico experienced a $2.7 billion positive adjusted merchandise trade
balance. The dominant sectors of the Puerto Rico economy are manufacturing and
services. Puerto Rico's more than decade-long economic expansion continued
throughout the five-year period from fiscal 1993 through fiscal 1997. Factors
behind this expansion included government-sponsored economic development
programs, periodic declines in the exchange value of the United States dollar,
increases in the level of federal transfers, and the relatively low cost of
borrowing. Gross product in fiscal 1993 was $25.1 billion ($24.5 billion in 1992
prices) and gross product in fiscal 1997 was $32.1 billion ($27.7 billion in
1992 prices). This represents an increase in gross product of 27.7% from fiscal
1993 to 1997 (13.0% in 1992 prices). Since fiscal 1985, personal income, both
aggregate and per capita, has increased consistently each fiscal year. In fiscal
1997, aggregate personal income was $32.1 billion ($30.0 billion in 1992 prices)
and personal income per capita was $8,509 ($7,957 in 1992 prices). Personal
income includes transfer payments to individuals in Puerto Rico under various
social programs. Total federal payments to Puerto Rico, which include transfers
to local government entities and expenditures of federal agencies in Puerto
Rico, in addition to federal transfer payments to individuals, are lower on a
per capita basis in Puerto Rico than in any state. Transfer payments to
individuals in fiscal 1997 were $7.3 billion, of which $5.2 billion, or 71.6%,
represented entitlements to individuals who had previously performed services or
made contributions under programs such as Social Security, Veterans' Benefits,
Medicare and U.S. Civil Service retirement pensions. Average employment
increased from 999,000 in fiscal 1993, to 1,128,300 in fiscal 1997. Average
unemployment decreased from 16.8% in fiscal 1993, to 13.1% in fiscal 1997.
According to the Labor Department's Household Employment Survey, during the
first eight months of fiscal 1998, total employment increased 0.4% over the same
period in fiscal 1997. Total monthly employment averaged 1,129,000 during the
first eight months of fiscal 1998, compared to 1,124,500 in the same period of
fiscal 1997. The Puerto Rico Planning Board's gross product forecast for fiscal
1998 projected an increase of 3.0% over fiscal 1997.
279831.15
-13-
<PAGE>
Original Issue Discount Bonds and Zero Coupon Bonds
Certain Series of the Trust may contain original issue discount bonds
and/or zero coupon bonds. Original issue discount bonds are bonds that were
originally issued at less than the market interest rate. Zero coupon bonds are
original issue discount bonds that do not provide for the payment of current
interest. For Federal income tax purposes, original issue discount on such bonds
must be amortized over the term of such bonds. On sale or redemption, the excess
of (1) the amount realized (other than amounts treated as tax-exempt income as
described below), over (2) the tax basis of such bonds (properly adjusted, in
the circumstances described below, for amortization of original issue discount)
will be treated as taxable income or loss. See "The Trust--Tax Status." The Code
requires holders of tax-exempt obligations issued with original issue discount,
(including holders of Units in a trust such as the Trust), to accrue tax-exempt
original issue discount by using the constant interest method provided for the
holders of taxable obligations. In addition, the Code provides that the basis of
a tax-exempt obligation is increased by the amount of accrued tax-exempt
original issue discount. These provisions are applicable to obligations issued
after September 3, 1982 and acquired after March 1, 1984. The Trust's tax basis
in a Bond is increased by any accrued original issue discount, as is a Unit
holder's tax basis in its Units. For Bonds issued after June 9, 1980 that are
redeemed prior to maturity, the difference between the Trust's basis, as
adjusted, and the amount received will be taxable gain or loss to the Unit
holders.
There can be no assurance that additional Federal legislation will not
be enacted or that existing legislation will not be amended hereafter with the
effect that interest on bonds becomes subject to Federal income taxation. If the
interest on the Bonds should ultimately be deemed to be taxable, the Sponsors
may instruct the Trustee to sell them, and, since they would be sold as taxable
securities, it is expected that they would have to be sold at a substantial
discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption prior to
their stated maturity date pursuant to sinking fund or call provisions. A
sinking fund is a reserve fund accumulated over a period of time for retirement
of debt. Sinking fund provisions are designed to redeem a significant portion of
an issue gradually over the life of the issue. Obligations to be redeemed are
generally chosen by lot. A callable debt obligation is one which is subject to
redemption prior to maturity at the option of the issuer. To the extent that
obligations in the Trust have a bid side valuation higher than their par value,
redemption of such obligations at par would result in a loss of capital to a
purchaser of Units at the public offering price. The estimated current return of
the Units might also be adversely affected if the return on the retired Bonds is
greater than the average return on the Bonds in the Trust. In general, call
provisions are more likely to be exercised when the offering side valuation is
at a premium over par than when it is at a discount from par. See "Special
Factors Concerning the Portfolio" in Part I of this Prospectus for information
for the number of bonds in the Portfolio that are original issue discount and
zero coupon bonds and "Portfolio Information" in Part I of this Prospectus for a
breakdown of the percentage of Bonds in the Trust with offering side valuations
at a premium, discount or at par. See also "Estimated Current Return and
Estimated Long Term Return". "The Portfolio" in Part I of this Prospectus
contains a listing of the sinking fund and call provisions, if any, with respect
to each of the Bonds therein.
279831.15
-14-
<PAGE>
Other Matters
An amendment to the Federal Bankruptcy Act relating to the adjustment
of indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or otherwise
alter the terms of its obligations, including those of the type comprising the
Trust's portfolio. The Sponsors are unable to predict what effect, if any, this
legislation will have on the Trust.
To the best knowledge of the Sponsors, there is no litigation pending
as of the date hereof in respect of any Securities which might reasonably be
expected to have a material adverse effect on the Trust, unless otherwise stated
in Part I of this Prospectus. At any time, however, litigation may be initiated
on a variety of grounds with respect to Securities in the Trust. Such litigation
as, for example, suits challenging the issuance of pollution control revenue
bonds under recently enacted environmental protection statutes, may affect the
validity of such Securities or the tax-free nature of the interest thereon.
While the outcome of such litigation can never be entirely predicted with
certainty, bond counsel have given opinions to the issuing authorities of each
Bond on the date of issuance to the effect that such Securities have been
validly issued and that the interest thereon is exempt from regular Federal
income tax. In addition, other litigation or other factors may arise from time
to time which potentially may impair the ability of issuers to meet obligations
undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the aggregate bid
price of the Bonds in the Trust (as determined by the Evaluator) plus a sales
charge determined in accordance with the schedule set forth below, which is
based upon the maturities of each Bond in the Trust. The Sponsors have
implemented this variable format as a more equitable method of assessing the
sales charge for secondary market purchases. For the purpose of computing the
sales charge, Bonds are deemed to mature on their expressed maturity dates,
unless the Evaluator evaluates the price of the Bonds to a different date, such
as a call date or a mandatory tender date, in which case the maturity will be
deemed to be such other date. This method of computing the sales charge will
apply different sales charge rates to each Bond in the Trust depending on the
maturity of each Bond in accordance with the following schedule:
279831.15
-15-
<PAGE>
<TABLE>
<CAPTION>
Secondary Market Period
Sales Charge
<S> <C> <C>
Percentage
Percentage of of Net
Years to Maturity Per Bond Public Offering Price Amount Invested
0 Months to 2 Years 1.0% 1.010%
2 but less than 3 2.0% 2.091%
3 but less than 4 3.0% 3.093%
4 but less than 8 4.0% 4.167%
8 but less than 12 5.0% 5.363%
12 but less than 15 5.5% 5.820%
15 or more 5.9% 6.270%
</TABLE>
A minimum sales charge of 1.0% of the Public Offering Price is applied
to all secondary market unit purchases. There is no reduction of the sales
charge for volume purchases in secondary market transactions.
A proportionate share of accrued and undistributed interest on the
Securities at the date of delivery of the Units to the purchaser is also added
to the Public Offering Price.
Unless Securities are in default in payment of principal or interest
or in significant risk of such default, the Evaluator will not attribute any
value to the Units due to the insurance obtained by the Trust. See also "Rights
of Unit Holders--Certificates" and "Rights of Unit Holders-- Redemption" for
information relating to redemption of Units. The Evaluator will consider in its
evaluation of Defaulted Bonds which are covered by insurance obtained by the
Trust the value of the insurance guaranteeing interest and principal payments as
well as the market value of the Securities and the market value of similar
securities of issuers whose securities, if identifiable, carry identical
interest rates and maturities and are of creditworthiness comparable to the
issuer prior to the default or risk of default. If such other securities are not
identifiable, the Evaluator will compare prices of securities with substantially
identical interest rates and maturities and of a creditworthiness of minimum
investment grade. As to Series 18 and subsequent Series, the value of the
insurance will be equal to the difference between (i) the market value of
Defaulted Bonds assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of Permanent Insurance
and the related custodial fee) and (ii) the market value of such Defaulted Bonds
not covered by Permanent Insurance. In any case the Evaluator will consider the
ability of the Insurer to meet its commitments under the Trust's insurance
policy and, in the case of Series 18 and subsequent Series, MBIA Inc.'s or MBIA
Corp.'s commitment to issue Permanent Insurance. For a description of the
circumstances under which a full or partial suspension of the right of Unit
holders to redeem their Units may occur, see "Rights of Unit Holders--
Redemption."
It is the present intention of the Trustee (and, in the case of Series
18 and subsequent Series, assuming the Trustee does not exercise the right to
obtain Permanent Insurance on any Defaulted Bonds), so long as the Trust
contains either some Bonds not in default or any Pre-insured Bonds, not to sell
Defaulted Bonds to effect redemptions or for any other reason but rather to
retain them in the portfolio BECAUSE VALUE ATTRIBUTABLE TO THE INSURANCE
OBTAINED BY THE TRUST CANNOT BE REALIZED UPON SALE. Insurance obtained by the
issuer of a Pre-insured Bond, or by some other party, is effective so long as
such Pre-insured Bond is outstanding and the insurer of
279831.15
-16-
<PAGE>
such Bond continues to fulfill its obligations. Therefore, any such insurance
may be considered to represent an element of market value in regard to the
Pre-insured Bond, but the exact effect, if any, of this insurance on such market
value cannot be predicted. Regardless of whether the insurer of a Pre- insured
Bond continues to fulfill its obligations, however, such Bond will in any case
continue to be insured under the policy obtained by the Trust from the Insurer
as long as the Bond is held in the Trust.
Certain commercial banks are making Units of the Trust available to
their customers on an agency basis. A portion of the sales charge discussed
above is retained by or remitted to the banks. Under the Glass- Steagall Act,
banks are prohibited from underwriting Trust Units; however, the Glass-Steagall
Act does permit certain agency transactions, and banking regulators have not
indicated that these particular agency transactions are not permitted under such
Act.
Market for Units
Although they are not obligated to do so, the Sponsors have maintained
and intend to continue to maintain a market for the Units and to continuously
offer to purchase Units at prices based on the aggregate bid price of the
Securities. The Sponsors' Repurchase Price shall be not less than the Redemption
Price plus accrued interest through the expected date of settlement. See "Rights
of Unit Holders--Redemption--Computation of Redemption Price per Unit." There is
no sales charge incurred when a Unit holder sells Units back to the Sponsors.
Any Units repurchased by the Sponsors may be reoffered to the public by the
Sponsors at the Public Offering Price at the time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for some other
business reason, the Sponsors may discontinue purchases of Units of such Series
at prices based on the aggregate bid price of the Securities. The Sponsors do
not in any way guarantee the enforceability, marketability or price of any
Security in the portfolio or of the Units of the Trust. In the event that a
market is not maintained for the Units, a Unit holder desiring to dispose of its
Units may be able to do so only by tendering such Units to the Trustee for
redemption at the Redemption Price, which is based upon the aggregate bid price
of the underlying Securities. The aggregate bid price of the Securities in the
Trust may be expected to be less than the aggregate offering price. If a Unit
holder wishes to dispose of its Units, he should inquire of the Sponsors as to
current market prices prior to making a tender for redemption to the Trustee.
See "Rights of Unit Holders--Redemption" and "Sponsors."
Employees (and their immediate families) of the Sponsors may, pursuant
to employee benefit arrangements, purchase Units of the Trust at a price equal
to the bid side evaluation of the underlying securities in the Trust, divided by
the number of Units outstanding. Such arrangements result in less selling effort
and selling expenses than sales to employee groups of other companies. Resales
or transfers of Units purchased under the employee benefit arrangements may only
be made through the Sponsors' secondary market, so long as it is being
maintained.
Distribution of Units
The Sponsors are the sole underwriters of the Units. It is the
Sponsors' intention to effect a public distribution of the Units solely through
their own organizations. Units may, however, be sold to dealers who
279831.15
-17-
<PAGE>
are members of the National Association of Securities Dealers, Inc. at a
discount. Such discount is subject to change from time to time by the Agent for
the Sponsors. Sales will be made only with respect to whole Units, and the
Sponsors reserve the right to reject, in whole or in part, any order for the
purchase of Units. It is the Sponsors' intention to continue to qualify Units of
the Trust for sale where such qualification is necessary. In maintaining a
market for the Units (see "Public Offering--Market for Units"), the Sponsors
will realize profits or sustain losses in the amount of any difference between
the price at which they buy Units and the price at which they resell such Units
(the Public Offering Price described in the currently effective Prospectus which
includes the sales charge set forth in Part I of this Prospectus under "Summary
of Essential Financial Information") or the price at which they may redeem such
Units (based upon the aggregate bid side evaluation of the Securities), as the
case may be, and to the extent that they earn sales charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In contrast,
tax-exempt bonds customarily are offered on a "yield price" basis. Therefore,
the rate of return on each Unit is measured in terms of both Estimated Current
Return and Estimated Long-Term Return. Estimated Current Return based on the
Public Offering Price per Unit and Estimated Long-Term Return per Unit and
information regarding estimated monthly and semi-annual distributions of
interest to Unit holders are set forth under "Summary of Essential Financial
Information" in Part I of this Prospectus.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. Estimated Net
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit will vary with
changes in the offering price of the Bonds. Estimated Current Return takes into
account only the interest payable on the Bonds and does not involve a
computation of yield to maturity or to an earlier redemption date nor does it
reflect any amortization of premium or discount from par value in the Bond's
purchase price. Moreover, because interest rates on bonds purchased at a premium
are generally higher than current interest rates on newly issued bonds of a
similar type with comparable ratings, the Estimated Current Return per Unit may
be affected adversely if such Bonds are redeemed prior to their maturity.
Therefore, there is no assurance that the Estimated Current Return as set forth
under "Summary of Essential Financial Information" in Part I of this Prospectus
will be realized in the future.
Estimated Long-Term Return is calculated using a formula that (i)
takes into consideration, and determines and factors in the relative weightings
of, the market values, yields (taking into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all the Bonds in
the portfolio and (ii) takes into account the expenses and sales charge
associated with each Unit of the Trust. The Estimated Long-Term Return assumes
that each Bond is retired on its pricing life date (i.e., that date which
produces the lowest dollar price when yield price calculations are done for each
optional call date and the maturity date of a callable security). If the Bond is
retired on any optional call or maturity date other than the pricing life date,
the yield to the holder of that Bond will be greater than the initial quoted
yield. Since the market values and estimated retirements of the Bonds, the
expenses of the Trust and the Net Annual Interest Income and
279831.15
-18-
<PAGE>
Public Offering Price per Unit may change, there is no assurance that the
Estimated Long-Term Return as set forth under "Summary of Essential Financial
Information" in Part I of this Prospectus will be realized in the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all principal
and interest on the Bonds in the Trust has been obtained from the Insurer by the
Trust. The Insurer has issued a policy of insurance covering each of the Bonds
in the Trust, including Pre-insured Bonds. As to each Trust, the Insurer shall
not have any liability under the policy with respect to any Bonds which do not
constitute part of the Trust. In determining to insure the Bonds, the Insurer
has applied its own respective standards which generally correspond to the
standards it has established for determining the insurability of new issues of
municipal bonds.
By the terms of its policy, the Insurer unconditionally guarantees to
the Trust the payment, when due, required of the issuer of the Bonds of an
amount equal to the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the Bonds as such payments shall become due but not paid. Except as
provided below with respect to small issue industrial development Bonds and
pollution control revenue Bonds, in the event of any acceleration of the due
date of principal by reason of mandatory or optional redemption (other than
mandatory sinking fund redemption), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as would have been due
had there not been an acceleration. The Insurer will be responsible for such
payments less any amounts received by the Trust from any trustee for the Bond
issuers or from any other source. The policy issued by the Insurer does not
guarantee payment on an accelerated basis, the payment of any redemption premium
or the value of the Units. The MBIA Inc. and MBIA Corp. policies also do not
insure against nonpayment of principal of or interest on the Bonds resulting
from the insolvency, negligence or any other act or omission of the trustee or
other paying agent for the Bonds. With respect to small issue industrial
development Bonds and pollution control revenue Bonds, however, MBIA Inc. and
MBIA Corp., respectively, guarantee the full and complete payments required to
be made by or on behalf of an issuer of such Bonds if there occurs pursuant to
the terms of the Bonds an event which results in the loss of the tax-exempt
status of interest on such Bonds, including principal, interest or premium
payments payable thereon, if any, as and when required to be made by or on
behalf of the issuer pursuant to the terms of such Bonds. No assurance can be
given that the policy issued by the Insurer would insure the payment of
principal or interest on Bonds which is not required to be paid by the issuer
thereof because the Bonds were not validly issued. At the respective times of
issuance of the Bonds, opinions relating to the validity thereof were rendered
by bond counsel to the respective issuing authorities.
The insurance policy relating to the Trust is non-cancelable and will
continue in force so long as the Trust is in existence and the Securities
described in the policy continue to be held in and owned by the Trust. Failure
to pay premiums on the policy obtained by the Trust will not result in the
cancellation of insurance but will force the Insurer to take action against the
Trustee to recover premium payments due it. The Trustee in turn will be entitled
to recover such payments from the Trust.
The policy issued by the Insurer shall terminate as to any Bond which
has been redeemed from or sold by the Trustee on the date of such
279831.15
-19-
<PAGE>
redemption or on the settlement date of such sale, and the Insurer shall not
have any liability under the policy as to any such Bond thereafter. If the date
of such redemption or the settlement date of such sale occurs between a record
date and a date of payment of any such Bonds, any MBIA Inc. or MBIA Corp. policy
will terminate as to such Bond on the business day next succeeding such date of
payment. The termination of a MBIA Inc. or MBIA Corp. policy as to any Bond
shall not affect MBIA Inc.'s or MBIA Corp.'s obligations regarding any other
Bond in such Trust or any other Trust which has obtained a MBIA Inc. or MBIA
Corp. insurance policy. The policy issued by the Insurer will terminate as to
all Bonds on the date on which the last of the Bonds matures, is redeemed or is
sold by the Trust.
Pursuant to an irrevocable commitment of the Insurer, the Trustee upon
the sale of a Bond in the Trust has the right to obtain permanent insurance with
respect to such Bond (i.e., insurance to maturity of the Bonds) (the "Permanent
Insurance") upon the payment of a single predetermined insurance premium from
the proceeds of the sale of such Bond. Accordingly, any Bond in such Series of
the Trust is eligible to be sold on an insured basis. It is expected that the
Trustee will exercise the right to obtain Permanent Insurance for a Bond in the
Trust upon instruction from the Sponsors only if upon such exercise the Trust
would receive net proceeds (sale of Bond proceeds less the insurance premium
attributable to the Permanent Insurance and the related custodial fee) from such
sale in excess of the sale proceeds if such Bond was sold on an uninsured basis.
The Permanent Insurance premium with respect to each Bond is
determined based upon the insurability of each Bond as of the Date of Deposit
and will not be increased or decreased for any change in the creditworthiness of
such Bond unless such Bond is in default as to payment of principal and/or
interest. In such event, the Permanent Insurance premium shall be subject to an
increase predetermined at the Date of Deposit and payable from the proceeds of
the sale of such Bond.
Except as indicated below, insurance obtained by the Trust has no
effect on the price or redemption value of Units thereof. It is the present
intention of the Evaluator to attribute a value to the insurance obtained by the
Trust (including the right to obtain Permanent Insurance) for the purpose of
computing the price or redemption value of Units thereof only if the Bonds
covered by such insurance are in default in payment of principal or interest or,
in the Sponsors' opinion, in significant risk of such default ("Defaulted
Bonds"). The value of the insurance will be equal to the difference between (1)
the market value of a Bond which is in default in payment of principal or
interest or a significant risk of default assuming the exercise of the right to
obtain Permanent Insurance (less the insurance premium attributable to the
purchase of Permanent Insurance and the related custodial fee) and (2) the
market value of such Bonds not covered by Permanent Insurance. Insurance
obtained by the issuer of a Bond or by parties other than the Trust is effective
so long as such Pre-insured Bond is outstanding and the insurer of such
Pre-insured Bond continues to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond continues to
fulfill its obligations, however, such Bond will continue to be insured under
the policy obtained by the Trust from MBIA Inc. or MBIA Corp. as long as the
Bond is held in the Trust. Insurance obtained by the issuer of a Bond or by
other parties may be considered to represent an element of market value in
regard to the Bonds thus insured, but the exact effect, if any, of this
insurance on such market value cannot be predicted.
279831.15
-20-
<PAGE>
In the event that interest on or principal of a Bond is due for
payment but is unpaid by reason of nonpayment by the issuer thereof, the Insurer
will make payments to its fiscal agent, as identified in the insurance policy
(the "Fiscal Agent"), equal to such unpaid amounts of principal and interest not
later than one business day after the Insurer has been notified by the Trustee
that such nonpayment has occurred (but not earlier than the date such payment is
due). The Fiscal Agent will disburse to the Trustee the amount of principal and
interest which is then due for payment but is unpaid upon receipt by the Fiscal
Agent of (1) evidence of the Trust's right to receive payment of such principal
and interest and (2) evidence, including any appropriate instruments of
assignment, that all of the rights to payment of such principal or interest then
due for payment shall thereupon vest in the Insurer. Upon payment by the Insurer
of any principal or interest payments with respect to any Bonds, the Insurer
shall succeed to the rights of the owner of such Bonds with respect to such
payment.
MBIA Corp. is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts
of or claims against MBIA Corp. MBIA Corp. is a limited liability corporation
rather than a several liability association. MBIA Corp. is domiciled in the
State of New York and licensed to do business in and subject to regulation under
the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of
the United States and the Territory of Guam.
As of December 31, 1997, MBIA Corp. had admitted assets of $5.3
billion (audited), total liabilities of $3.5 billion (audited), and total
capital and surplus of $1.8 billion (audited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. As of June 30, 1998, MBIA Corp. had admitted assets of $6.0 billion
(unaudited), total liabilities of $4.0 billion (unaudited), and total capital
and surplus of $2.0 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The address of MBIA Corp. is 113 King Street, Armonk, New York
10504.
As of the Evaluation Date, the claims-paying ability of MBIA Corp. has
been rated "AAA" by Standard & Poor's and "Aaa" by Moody's.
No representation is made herein as to the accuracy or adequacy of
such information or as to the absence of material adverse changes in such
information subsequent to the date thereof. The Sponsors are not aware that the
information herein is inaccurate or incomplete as of the date hereof.
The contract of insurance relating to the Trust and the negotiations
in respect thereof and certain agreements relating to Permanent Insurance
represent the only significant relationship between the Insurer and the Trust.
Otherwise, neither the Insurer nor any associate thereof has any material
business relationship, direct or indirect, with the Trust or the Sponsors,
except that the Sponsors may from time to time in the normal course of their
business participate as underwriters or as managers or as members of
underwriting syndicates in the distribution of new issues of municipal bonds for
which a policy of insurance guaranteeing the payment of interest and principal
has been obtained from the Insurer, and except that James A. Lebenthal, Chairman
of the Board of Directors of Lebenthal & Co., Inc., is a director of MBIA Inc.
Although all issues contained in the portfolio of the Trust are individually
insured, neither the Trust, the Units nor the portfolio is insured directly or
indirectly by the Insurer.
279831.15
-21-
<PAGE>
A purpose of the insurance on the Bonds in the portfolio obtained by
the Trust is to obtain a higher yield on the Trust portfolio than would be
available if all the Securities in such portfolio had Standard & Poor's "AAA"
rating and/or Moody's "Aaa" rating but were uninsured and yet at the same time
to have the protection of insurance of payment of interest and principal on the
Securities. There is, of course, no certainty that this result will be achieved.
Any Pre-insured Bonds in the Trust (all of which are rated "AAA" by Standard &
Poor's and/or "Aaa" by Moody's, respectively) may or may not have a higher yield
than uninsured bonds rated "AAA" by Standard & Poor's and/or "Aaa" by Moody's,
respectively.
Because the Securities are insured by the Insurer as to the payment of
principal and interest, Moody's has assigned a rating of "Aaa" to all of the
Bonds in the Trust, as insured, and Standard & Poor's has assigned its "AAA"
investment rating to the Units and Bonds in the Trust. See "Tax Exempt Bond
Portfolio" in Part I of this Prospectus. These ratings apply to the Bonds only
while they are held in the Trust. The obtaining of these ratings by the Trust
should not be construed as an approval of the offering of the Units by Standard
& Poor's or Moody's or as a guarantee of the market value of the Trust or of the
Units. These ratings are not a recommendation to buy, hold or sell and do not
take into account the extent to which Trust expenses or portfolio asset sales
for less than the Trust's acquisition price will reduce payment to the Unit
holders of the interest or principal.
TAX STATUS (See also "Tax Status" in Part I of this Prospectus)
Interest income on the Bonds contained in the Trust portfolio is, in
the opinion of bond counsel to the issuing governmental authorities rendered at
the time of original issuance of the Bonds, excludable from gross income under
the Internal Revenue Code of 1954, as amended (the "1954 Code"), or the Internal
Revenue Code of 1986, as amended (the "Code"), depending upon the date of
issuance of the Bonds in any particular Series. See "The Trust-- Portfolio."
Gain (or loss) realized on a sale, maturity or redemption of the Bonds
or on a sale or redemption of a Unit is, however, includable in gross income as
long- or short-term capital gain (or loss), depending on the holding period of
the Units, for Federal, state and local income tax purposes, assuming that the
Unit is held as a capital asset. Such gain (or loss) does not include any amount
received in respect of accrued interest, accrued original issue discount or
accrued market discount. Gain on the disposition of a Bond purchased at a market
discount generally will be treated as ordinary income, rather than capital gain,
to the extent of accrued market discount. Bonds selling at a market discount
tend to increase in market value as they approach maturity, when the principal
amount is payable, thus increasing the potential for taxable gain (or reducing
the potential for loss) on their redemption, maturity or sale. Long-term capital
gains realized by noncorporate Unit holders on the disposition of Bonds or Units
will be taxed at a maximum federal income tax rate of 20% if the Unit has been
held for more than one year), whereas ordinary income received by noncorporate
Unit holders will be taxed at a maximum federal income tax rate of 39.6%. The
deductibility of capital losses is limited to the amount of capital gain; in
addition, up to $3,000 ($1,500 for married persons filing separately) of capital
losses of non-corporate Unit holders may be deducted against ordinary income.
Since the proceeds from sales of Bonds, under certain circumstances, may not be
distributed, a Unit holder's taxable income for any year may exceed the actual
cash distributions to the Unit holder in that year.
279831.15
-22-
<PAGE>
Among other things, the Code provides for the following: (1) interest
on certain private activity bonds issued after August 7, 1986 is included in the
calculation of the individual's alternative minimum tax currently taxed at a
rate of up to 28% (however, none of the Bonds in the Trust is a private activity
bond, the interest on which is subject to the alternative minimum tax); (2)
interest on certain private activity bonds issued after August 7, 1986 is
included in the calculation of the corporate alternative minimum tax and 75% of
the amount by which adjusted current earnings (including interest on all
tax-exempt bonds, such as the Bonds) exceed alternative minimum taxable income,
as modified for this calculation, will be included in alternative minimum
taxable income. Interest on the Bonds is includable in the adjusted current
earnings of a corporation for purposes of this alternative minimum tax. The Code
does not otherwise require corporations, and does not require taxpayers other
than corporations, including individuals, to treat interest on the Bonds as an
item of tax preference in computing alternative minimum tax; (3) subject to
certain exceptions, no financial institution is allowed a deduction for the
portion of the institution's interest expense that is allocable to tax-exempt
interest on tax-exempt bonds acquired after August 7, 1986; (4) the amount of
the deduction allowed to property and casualty insurance companies for
underwriting loss is decreased by an amount determined with regard to tax-exempt
interest income and the deductible portion of dividends received by such
companies; (5) all taxpayers are required to report for informational purposes
on their Federal income tax returns the amount of tax-exempt interest they
receive; (6) an issuer must meet certain requirements on a continuing basis in
order for interest on a tax-exempt bond to be tax-exempt, with failure to meet
such requirements resulting in the loss of tax exemption; and (7) a branch
profits tax is imposed on U.S. branches of foreign corporations which, because
of the manner in which the branch profits tax is calculated, may have the effect
of subjecting the U.S. branch of a foreign corporation to Federal income tax on
the interest on bonds otherwise exempt from such tax.
Section 86 of the Code provides that a portion of social security
benefits is includable in taxable income for taxpayers whose "modified adjusted
gross income," combined with a portion of their social security benefits,
exceeds a base amount. The base amount is $25,000 for an individual, $32,000 for
a married couple filing a joint return and zero for married persons filing
separate returns. Interest on tax-exempt bonds is added to adjusted gross income
for purposes of determining whether an individual's income exceeds the base
amount described above.
In addition, certain "S Corporations" may be subject to minimum tax on
certain passive income, including tax-exempt interest, such as interest on the
Bonds.
At the time of the original issuance of the Bonds held by the Trust,
opinions relating to the validity of the Bonds and the exemption of interest
thereon from Federal income tax were or (with respect to "when, as and if
issued" Bonds) were to be rendered by bond counsel to the issuing governmental
authorities. Neither the Sponsors nor their special counsel have made any review
of proceedings relating to the issuance of such Bonds or the basis for bond
counsel's opinions.
In the case of certain Bonds which may be included in the Trust, the
opinions of bond counsel indicate that, although interest on such Bonds is
generally exempt from Federal income tax, such Bonds are "industrial development
bonds" under the 1954 Code or are "private activity bonds" as that term is
defined in the Code (the following discussion also applies to Bonds
279831.15
-23-
<PAGE>
that are "industrial development bonds" as they are defined in the 1954 Code in
terms similar to those under which private activity bonds are defined in the
Code and are generally subject to the same limitations). Interest on certain
qualified small issue private activity bonds is exempt from Federal income tax
only so long as the "principal user" of the bond-financed facility and any
"related person" remain within the capital expenditure limitations of the Code
and only so long as the aggregate private activity bond limits of the Code are
met. In addition, interest on private activity bonds will not be exempt from
Federal income tax for any period during which such bonds are held by a
"substantial user" of the facilities financed by the proceeds of such bonds (or
a "related person" to such a "substantial user"). Interest attributable to such
Bonds, if received by a Unit holder who is such a "substantial user" or "related
person," will be taxable (i.e., not tax-exempt) to the same extent as if such
Bonds were held directly as owner.
In addition, a Bond can lose its tax-exempt status as a result of
other subsequent but unforeseeable events such as prohibited "arbitrage"
activities by the issuer of the Bond or the failure of the Bond to continue to
satisfy the conditions required for the exemption of interest thereon from
regular federal income tax. No investigation has been made as to the current or
future owners or users of the facilities financed by the bonds, the amount of
such persons' outstanding tax-exempt private activities bonds, or the facilities
themselves, and no assurance can be given that future events will not affect the
tax-exempt status of the Bonds. Investors should consult their tax advisors for
advice with respect to the effect of these provisions on their particular tax
situation.
Under Section 265 of the Code, if borrowed funds are used by a Unit
holder to purchase or carry Units of the Trust, interest on such indebtedness
will not be deductible for Federal income tax purposes. Under rules used by the
Internal Revenue Service, the purchase of Units may be considered to have been
made with borrowed funds even though the borrowed funds are not directly
traceable to the purchase of Units. Similar rules are applicable for purposes of
state and local taxation. Investors with questions regarding this issue should
consult their tax advisors.
The Trust may contain Bonds issued with original issue discount. The
Code requires holders of tax-exempt obligations issued with original issue
discount, such as the Trust (and therefore the Unit holders), to accrue
tax-exempt original issue discount by using the constant interest method
provided for the holders of taxable obligations and to increase the basis of a
tax-exempt obligation by the amount of accrued tax-exempt original issue
discount. These provisions are applicable to obligations issued after September
3, 1982 and acquired after March 1, 1984. The Trust's tax basis in a Bond is
increased by any accrued original issue discount, as is a Unit holder's tax
basis in its Units. For Bonds issued on or after June 9, 1980 that are redeemed
prior to maturity, the difference between the Trust's basis, as adjusted, and
the amount received will be taxable gain or loss to the Unit holders.
If a Unit holder's tax cost for its pro rata interest in a Bond
exceeds its pro rata interest in the Bond's face amount, the Unit holder will be
considered to have purchased its pro rata interest in the Bond at a "premium."
The Unit holder will be required to amortize any premium relating to its pro
rata interest in a Bond prior to the maturity of the Bond. Amortization of
premium on a Bond will reduce a Unit holder's tax basis for this pro rata
interest in the Bond, but will not result in any deduction from the Unit
holder's income. Thus, for example, a Unit holder who purchases a
279831.15
-24-
<PAGE>
pro rata interest in a Bond at a premium and resells it at the same price will
recognize taxable gain equal to the portion of the premium that was amortized
during the period the Unit holder is considered to have held such interest.
The exemption of interest on municipal obligations for Federal income
tax purposes does not necessarily result in exemption under the income tax laws
of any state or local government. Interest income derived from the Bonds is not
excluded from net income in determining New York State or New York City
franchise taxes on corporations or financial institutions. The laws of states
and local governments vary with respect to the taxation of such obligations.
From time to time proposals have been introduced before Congress, the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals may be introduced in the future. The Sponsors
cannot predict whether additional legislation, if any, in respect of the Federal
income tax status of interest on debt obligations may be enacted and what the
effect of such legislation would be on Bonds in the Trust. In addition, the
enactment of a "flat tax" or other legislation that significantly alters the
federal income tax system may have a material adverse effect on the value of
Units. If the interest on any Bonds in the Trust should ultimately be deemed to
be taxable, the Sponsors may instruct the Trustee to sell such Bonds, and, since
they would be sold as taxable securities, it is expected that they would be sold
at a substantial discount from current market prices.
In South Carolina v. Baker, the U.S. Supreme Court held that the
federal government may constitutionally require states to register bonds they
issue and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the federal government to
regulate and control bonds such as the Bonds in the Trust and to tax interest on
such bonds in the future. The decision does not, however, affect the current
exclusion from gross income of the interest earned on the Bonds in the Trust in
accordance with Section 103 of the Code.
The opinions of counsel to the issuing governmental authorities to the
effect that interest on the Bonds is exempt from regular federal income tax may
be limited to law existing at the time the Bonds were issued, and may not apply
to the extent that future changes in law, regulations or interpretations affect
such Bonds. Investors are advised to consult their own advisors for advice with
respect to the effect of any legislative changes.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units 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.
279831.15
-25-
<PAGE>
Certificates may be issued in denominations of one Unit or any
multiple thereof. A Unit holder may be required to pay $2.00 per certificate
reissued or transferred and to pay any governmental charge that may be imposed
in connection with each such transfer or interchange. For new certificates
issued to replace destroyed, stolen or lost certificates, the Unit holder must
furnish indemnity satisfactory to the Trustee and must pay such expenses as the
Trustee may incur. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distribution of Interest and Principal
While interest will be distributed semi-annually or monthly, depending
on the method of distribution chosen, principal, including capital gains, will
be distributed only semi-annually; provided, however, that, other than for
purposes of redemption, no distribution need be made from the Principal Account
if the balance therein is less than $1.00 per Unit then outstanding, and that,
if at any time the pro rata share represented by the Units of cash in the
Principal Account exceeds $10.00 as of a Monthly Record Date, the Trustee shall,
on the next succeeding Monthly Distribution Date, distribute the Unit holder's
pro rata share of the balance of the Principal Account. Interest (semi-annually
or monthly) and principal, including capital gains, if any (semi-annually),
received by the Trust will be distributed on each Distribution Date to Unit
holders of record of the Trust as of the preceding Record Date who are entitled
to such distributions at that time under the plan of distribution chosen. All
distributions will be net of applicable expenses and funds required for the
redemption of Units. See "Summary of Essential Financial Information" in Part I
of this Prospectus, "The Trust--Expenses and Charges" and "Rights of Unit
Holders--Redemption" in Part II.
The Trustee will credit to the Interest Account for the Trust all
interest received by the Trust, including that part of the proceeds of any
disposition of Securities which represents accrued interest. Other receipts of
the Trust will be credited to the Principal Account for the Trust. The pro rata
share of the Interest Account of the Trust and the pro rata share of cash in the
Principal Account of the Trust represented by each Unit thereof will be computed
by the Trustee each month as of the Record Date. See "Summary of Essential
Financial Information" in Part I of this Prospectus. Proceeds received from the
disposition of any of the Securities subsequent to a Record Date and prior to
the next succeeding Distribution Date will be held in the Principal Account for
the Trust and will not be distributed until the second succeeding Distribution
Date. Because interest on the Securities is not received by the Trust at a
constant rate throughout the year, any particular interest distribution may be
more or less than the amount credited to the Interest Account of the Trust as of
the Record Date. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date following their purchase of Units under the applicable plan of
distribution. No distribution need be made from the Principal Account if the
balance therein is less than an amount sufficient to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to the first
Record Date and to the related Distribution Date is an asset of the respective
Unit holder and will be realized in subsequent distributions or upon the earlier
of the sale of such Units or the maturity, redemption or sale of Securities in
the Trust.
279831.15
-26-
<PAGE>
The plan of distribution selected by a Unit holder will remain in
effect until changed. Unit holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Each April, the Trustee will furnish each Unit holder a card to be
returned together with the Certificate by May 15 of such year if the Unit holder
desires to change its plan of distribution, and the change will become effective
on May 16 of such year for the ensuing twelve months. For a discussion of
redemption of Units, see "Rights of Unit Holders--Redemption-- Tender of Units."
As of the fifteenth day of each month the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust as of the
first day of such month. See "The Trust--Expenses and Charges." The Trustee also
may withdraw from said accounts such amounts, if any, as it deems necessary to
establish a reserve for any governmental charges payable out of the Trust.
Amounts so withdrawn shall not be considered a part of the Trust's assets until
such time as the Trustee shall return all or any part of such amounts to the
appropriate account. In addition, the Trustee may withdraw from the Interest
Account and the Principal Account such amounts as may be necessary to cover
redemption of Units by the Trustee. See "Rights of Unit Holders--Redemption."
Funds which are available for future distributions, payments of expenses and
redemptions are in accounts which are non-interest bearing to the Unit holders
and are available for use by the Trustee pursuant to normal banking procedures.
Because interest on Securities in the Trust is payable at varying
intervals, usually in semi-annual installments, the interest accruing to the
Trust will not be equal to the amount of money received and available monthly
for distribution from the Interest Account to Unit holders choosing the monthly
payment plan. Therefore, on each monthly Distribution Date, the amount of
interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest distribution
made. In addition, because of the varying interest payment dates of the
Securities constituting the Trust portfolio, accrued interest at any point in
time will be greater than the amount of interest actually received by the Trust
and distributed to Unit holders. Therefore, there will usually remain an item of
accrued interest that is added to the value of the Units. If a Unit holder sells
all or a portion of its Units, he will be entitled to receive its proportionate
share of the accrued interest from the purchaser of its Units. Similarly, if a
Unit holder redeems all or a portion of its Units, the Redemption Price per Unit
which he is entitled to receive from the Trustee will also include accrued
interest on the Securities. Thus, the accrued interest attributable to a Unit
will not be entirely recovered until the Unit holder either redeems or sells
such Unit or until the Trust is terminated. See "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit."
Expenses and Charges
Initial Expenses
All the expenses of creating and establishing the Trust for Series 118
and prior Series have been borne by the Sponsors, including the cost of the
initial preparation, printing and execution of the Trust Agreement and the
certificates for Units, legal expenses, advertising and selling expenses,
expenses of the Trustee and other out-of-pocket expenses.
279831.15
-27-
<PAGE>
All or a portion of the expenses incurred in creating and establishing
the Trust for Series 119 and subsequent Series, including the cost of the
initial preparation and execution of the Trust Agreement, the initial fees and
expenses of the Trustee, legal expenses and other actual out-of-pocket expenses,
have been paid by the Trust. For Series 119 through 140 such expenses will be
amortized over a five year period. Organizational expenses for Series 141 and
subsequent Series will be charged upon the investor's purchase of Units during
the initial offering period and will be paid at the close of the initial
offering period by the Trust. All advertising and selling expenses, as well as
any organizational expenses not paid by the Trust, will be borne by the Sponsors
at no cost to the Trust.
Fees
The Trustee's, Sponsor's and Evaluator's fees are set forth under
"Summary of Essential Financial Information" in Part I of this Prospectus. The
Sponsors' fee, if any, which is earned for portfolio supervisory services, is
based on the face amount of Securities in the Trust at December 1 of each year.
The Sponsors' fee, which is not to exceed the maximum amount set forth in the
"Summary of Essential Financial Information" in Part I of this Prospectus, may
exceed the actual costs of providing portfolio supervisory services for a
particular Series, but at no time will the total amount received by the Sponsors
for portfolio supervisory services rendered to all Series of Empire State
Municipal Exempt Trust in any calendar year exceed the aggregate cost to them of
supplying such services in such year.
The Trustee will receive for its ordinary recurring services to the
Trust an annual fee in the amount set forth in the "Summary of Essential
Financial Information" in Part I of this Prospectus. There is no minimum fee
and, except as hereinafter set forth, no maximum fee. For a discussion of
certain benefits derived by the Trustee from the Trust's funds, see "Rights of
Unit Holders--Distribution of Interest and Principal." For a discussion of the
services performed by the Trustee pursuant to its obligations under the Trust
Agreement, reference is made to the material set forth under "Rights of Unit
Holders."
The Trustee's and Evaluator's fees are payable monthly on or before
each Distribution Date and the Sponsors' annual fee is payable annually on
December 1, each from the Interest Account to the extent funds are available and
then from the Principal Account. These fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases in consumer
prices for services as measured by the United States Department of Labor's
Consumer Price Index entitled "All Services Less Rent." If the balances in the
Principal and Interest Accounts are insufficient to provide for amounts payable
by the Trust, or amounts payable to the Trustee which are secured by its prior
lien on the Trust, the Trustee is permitted to sell Bonds to pay such amounts.
Insurance Premiums
The cost of the insurance obtained by the Trust as set forth under
"Summary of Essential Financial Information" in Part I of this Prospectus is
based on the aggregate amount of Bonds in the Trust as of the date of such
information. The premium, which is an obligation of each respective Trust, is
payable monthly by the Trustee on behalf of the Trust. As Securities in the
portfolio of the Trust mature, are redeemed by their respective issuers or are
sold by the Trustee, the amount of the premium will be reduced in respect of
those Securities no longer owned by and held in the Trust. The Trust does not
279831.15
-28-
<PAGE>
incur any premium expense for any insurance which has been obtained by an issuer
of a Pre-insured Bond, since the premium or premiums for such insurance have
been paid by such issuer or other party; Pre-insured Bonds, however, are
additionally insured by the Trust. No premium will be paid by the Trust on Bonds
which are also MBIA Corp Pre-insured Bonds or MBIA Pre-insured Bonds. The
premium payable for Permanent Insurance and the related custodial fee will be
paid solely from the proceeds of the sale of a Bond from the Trust in the event
that the Trustee exercises the right to obtain Permanent Insurance on such Bond.
Other Charges
The following additional charges are or may be incurred by the Trust:
all expenses (including audit and counsel fees) of the Trustee incurred in
connection with its activities under the Trust Agreement, including annual audit
expenses by independent public accountants selected by the Sponsors (so long as
the Sponsors maintain a secondary market, the Sponsors will bear any audit
expense which exceeds 50 cents per Unit), the expenses and costs of any action
undertaken by the Trustee to protect the Trust and the rights and interests of
the Unit holders; fees of the Trustee for any extraordinary services performed
under the Trust Agreement; indemnification of the Trustee for any loss or
liability accruing to it without willful misconduct, bad faith or gross
negligence on its part, arising out of or in connection with its acceptance or
administration of the Trust; and all taxes and other governmental charges
imposed upon the Securities or any part of the Trust (no such taxes or charges
are being levied or made or, to the knowledge of the Sponsors, contemplated).
The above expenses, including the Trustee's fee, when paid by or owing to the
Trustee, are secured by a lien on the Trust. In addition, the Trustee is
empowered to sell Securities in order to make funds available to pay all
expenses.
Reports and Records
The Trustee shall furnish Unit holders of the Trust in connection with
each distribution a statement of the amount of interest, if any, and the amount
of other receipts, if any, which are being distributed, expressed in each case
as a dollar amount per Unit. Within a reasonable time after the end of each
calendar year, the Trustee will furnish to each person who at any time during
the calendar year was a Unit holder of record a statement providing the
following information: (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Securities and any earned original issue discount), and, if the issuers of the
Securities are located in different states or territories, the percentage of
such interest by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust (including insurance
costs), redemptions of Units and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (2) as to the Principal Account: the dates of
disposition of any Securities and the net proceeds received therefrom (including
any unearned original issue discount but excluding any portion representing
interest, with respect to the Trust the premium attributable to the Trustee's
exercise of the right to obtain Permanent Insurance and any related custodial
fee), deductions for payments of applicable taxes and for fees and expenses of
the Trust, redemptions of Units, the amount of any "when issued" interest
treated as a return of capital and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit
279831.15
-29-
<PAGE>
outstanding on the last business day of such calendar year; (3) a list of the
Securities held and the number of Units outstanding on the last business day of
such calendar year; (4) the Redemption price per Unit based upon the last
computation thereof made during such calendar year; and (5) amounts actually
distributed during such calendar year from the Interest Account and from the
Principal Account, separately stated, expressed both as total dollar amounts and
as dollar amounts representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit holders, at
all reasonable times during usual business hours, books of record and account of
its transactions as Trustee including records of the names and addresses of Unit
holders, certificates issued or held, a current list of Securities in the
portfolio of the Trust and a copy of the Trust Agreement.
Redemption
Tender of Units
While it is anticipated that Units can be sold in the secondary
market, Units may also be tendered to the Trustee for redemption at its
corporate trust office at 101 Barclay Street, New York, New York 10286, upon
payment of any applicable tax. At the present time there are no specific taxes
related to the redemption of the Units. No redemption fee will be charged by the
Sponsors or the Trustee. Units redeemed by the Trustee will be canceled.
Certificates for Units to be redeemed must be delivered to the Trustee
and must be properly endorsed and accompanied by a written instrument of
transfer. Thus, redemption of Units cannot be effected until certificates
representing such Units have been delivered to the person seeking redemption.
See "Rights of Unit Holders--Certificates." Unit holders must sign exactly as
their names appear on the face of the certificate with signature(s) guaranteed
by an officer of a national bank or trust company, a member firm of either the
New York, Midwest or Pacific Stock Exchange, or in such other manner as may be
acceptable to the Trustee. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
By the third business day following such tender, the Unit holder will
be entitled to receive in cash an amount for each Unit tendered equal to the
Redemption Price per Unit computed as of the Evaluation Time set forth in Part I
of this Prospectus under "Summary of Essential Financial Information" as of the
next subsequent Evaluation Time. See "Redemption--Computation of Redemption
Price per Unit." The "date of tender" is deemed to be the date on which Units
are received by the Trustee, except that as regards Units received after the
Evaluation Time on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading or the next day on which there is
a sufficient degree of trading in Units of the Trust, and such Units will be
deemed to have been tendered to the Trustee on such day for redemption at the
Redemption Price computed on that day. For information relating to the purchase
by the Sponsors of Units tendered to the Trustee for redemption at prices in
excess of the Redemption Price, see "Redemption--Purchase by the Sponsors of
Units Tendered for Redemption."
Accrued interest paid on redemption shall be withdrawn from the
Interest Account or, if the balance therein is insufficient, from the
279831.15
-30-
<PAGE>
Principal Account. All other amounts paid on redemption shall be withdrawn from
the Principal Account. The Trustee is empowered to sell Securities in order to
make funds available for redemption. Such sales, if required, could result in a
sale of Securities by the Trustee at a loss. To the extent Securities are sold,
the size and diversity of the Trust will be reduced.
If the Trustee exercises the right to obtain Permanent Insurance on a
Bond, such Bond will be sold from the Trust on an insured basis. In the event
that the Trustee does not exercise the right to obtain Permanent Insurance on a
Bond, such Bond will be sold from the Trust on an uninsured basis since the
insurance obtained by the Trust covers the timely payment of principal and
interest when due on the Bonds only while the Bonds are held in and owned by the
Trust. If the Trustee does not exercise the right to obtain Permanent Insurance
on a Defaulted Bond, to the extent that Bonds which are current in payment of
interest are sold from the Trust portfolio in order to meet redemption requests
and Defaulted Bonds are retained in the portfolio in order to preserve the
related insurance protection applicable to said Bonds, the overall value of the
Bonds remaining in the Trust will tend to diminish. See
"Sponsors--Responsibility" for the effect of selling Defaulted Bonds to meet
redemption requests.
The Trustee reserves the right to suspend the right of redemption and
to postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or during which trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by rule or
regulation) an emergency exists as a result of which disposal or evaluation of
the underlying Bonds is not reasonably practicable, or for such other periods as
the Securities and Exchange Commission has by order permitted.
Because insurance obtained by the Trust terminates as to Bonds which
are sold by the Trustee, and because the insurance obtained by the Trust does
not have a realizable cash value which can be used by the Trustee to meet
redemptions of Units (assuming, in the case of Series 18 and subsequent Series,
that the Trustee does not exercise the right to obtain Permanent Insurance on
Defaulted Bonds), under certain circumstances the Sponsors may apply to the
Securities and Exchange Commission for an order permitting a full or partial
suspension of the right of Unit holders to redeem their Units if a significant
portion of the Bonds in the portfolio is in default in payment of principal or
interest or in significant risk of such default. No assurances can be given that
the Securities and Exchange Commission will permit the Sponsors to suspend the
rights of Unit holders to redeem their Units, and, without the suspension of
such redemption rights when faced with excessive redemptions, the Sponsors may
not be able to preserve the benefits of the Trust's insurance on Defaulted
Bonds.
Computation of Redemption Price Per Unit
The Redemption Price per Unit is determined by the Trustee on the
basis of the bid prices of the Securities in the Trust, as of the Evaluation
Time stated under "Summary of Essential Financial Information" in Part I of this
Prospectus on the day any such determination is made. The Redemption Price per
Unit is each Unit's pro rata share, determined by the Trustee, of (1) the
aggregate value of the Securities in the Trust (determined by the Evaluator as
set forth below), except for those cases in which the value of insurance has
been included, (2) cash on hand in the Trust, and (3) accrued and unpaid
interest on the Securities as of the date of computation, less
279831.15
-31-
<PAGE>
(a) amounts representing taxes or governmental charges payable out of the Trust,
(b) the accrued expenses of the Trust, and (c) cash held for distribution to
Unit holders of record as of a date prior to the evaluation. The Evaluator may
determine the value of the Securities in the Trust (i) on the basis of current
bid prices for the Securities, (ii) if bid prices are not available for any
Securities, on the basis of current bid prices for comparable bonds, (iii) by
appraisal, or (iv) by any combination of the above. In determining the
Redemption Price per Unit, no value will be assigned to the portfolio insurance
obtained by the Trust on the Bonds in the Trust unless such Bonds are in default
in payment of principal or interest or in significant risk of such default. On
the other hand, Pre-insured Bonds in the Trust are entitled at all times to the
benefits of insurance obtained by their respective issuers so long as the
Pre-insured Bonds are outstanding and the insurer continues to fulfill its
obligations, and such benefits are reflected and included in the market value of
Pre-insured Bonds. For a description of the situations in which the Evaluator
may value the insurance obtained by the Trust, see "Public Offering--Market for
Units."
Purchase by the Sponsors of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the Sponsors of
any tender of Units for redemption. So long as the Sponsors are maintaining a
bid in the secondary market, the Sponsors, prior to the close of business on the
second succeeding business day, will purchase any Units tendered to the Trustee
for redemption at the price so bid by making payment therefor to the Unit holder
in an amount not less than the Redemption Price on the date of tender not later
than the day on which the Units would otherwise have been redeemed by the
Trustee. See "Public Offering--Market for Units." Units held by the Sponsors may
be tendered to the Trustee for redemption as any other Units, provided that the
Sponsors shall not receive for Units purchased as set forth above a higher price
than they paid, plus accrued interest.
The offering price of any Units resold by the Sponsors will be the
Public Offering Price determined in the manner provided in this Prospectus. See
"Public Offering-- Offering Price." Any profit resulting from the resale of such
Units will belong to the Sponsors which likewise will bear any loss resulting
from a lower offering or redemption price subsequent to their acquisition of
such Units.
Exchange Option
The Sponsors of the Series of Empire State Municipal Exempt Trust
(including the Series of Municipal Exempt Trust, the predecessor trust to Empire
State Municipal Exempt Trust) (the "Trust") are offering Unit holders of those
Series of the Trust for which the Sponsors are maintaining a secondary market an
option to exchange a Unit of any Series of the Trust for a Unit of a different
Series of the Trust being offered by the Sponsors (other than in the initial
offering period) at a Public Offering Price generally based on the bid prices of
the underlying Securities divided by the number of Units outstanding (see
"Public Offering--Market for Units") plus a fixed sales charge of $15 per Unit
(in lieu of the normal sales charge). However, a Unit holder must have held its
Unit for a period of at least six months in order to exercise the exchange
option or agree to pay a sales charge based on the greater of $15 per Unit or an
amount which together with the initial sales charge paid in connection with the
acquisition of Units being exchanged equals the normal sales charge of the
Series into which the investment is being converted, determined as of the date
of the exchange. Such exchanges will be
279831.15
-32-
<PAGE>
effected in whole Units only. Any excess proceeds from the Units being
surrendered will be returned, and the Unit holder will not be permitted to
advance any new money in order to complete an exchange. The Sponsors reserve the
right to modify, suspend or terminate this plan at any time without further
notice to the Unit holders. In the event that the exchange option is not
available to a Unit holder at the time he wishes to exercise it, the Unit holder
will be immediately notified and no action will be taken with respect to its
Units without further instructions from the Unit holder.
Unit holders are urged to consult their tax advisors as to the tax
consequences of exchanging Units.
279831.15
-33-
<PAGE>
AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with Empire
Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit holders of
the Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Empire Builder. The Empire Builder is an open-end,
non-diversified investment company whose investment objective is to seek as high
a level of current income exempt from Federal income tax, New York State and New
York City income taxes as is believed to be consistent with preservation of
capital. It is the policy of the Empire Builder to invest primarily in debt
securities the interest income from which is exempt from such taxes.
The Empire Builder has an investment objective which differs in
certain respects from that of the Trust. The bonds purchased by the Empire
Builder will be of "investment grade" quality - that is, at the time of purchase
by the Empire Builder, such bonds either will be rated not lower than the four
highest ratings of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA,
AA, A, or BBB) or will be unrated bonds which at the time of purchase are judged
by the Empire Builder's investment advisor to be of comparable quality to bonds
rated within such four highest grades. It is a fundamental policy of the Empire
Builder that under normal market conditions at least 90% of the income
distributed to its shareholders will be exempt from Federal income tax, New York
State and New York City personal income taxes. However, during times of adverse
market conditions when the Empire Builder is investing for temporary defensive
purposes in obligations other than New York tax-exempt bonds, more than 10% of
the Empire Builder's income distributions could be subject to Federal income
tax, New York State income tax and/or New York City income tax, as described in
the current prospectus relating to the Empire Builder (the "Empire Builder
Prospectus"). Glickenhaus & Co. ("Glickenhaus"), a sponsor of the Trust, acts as
the investment advisor and distributor for the Empire Builder.
Each Unit holder may request from The Bank of New York (the "Plan
Agent") a copy of the Empire Builder Prospectus describing the Empire Builder
and a form by which such Unit holder may elect to become a participant
("Participant") in the Plan. Thereafter, as directed by such person,
distributions on the Participant's Units will, on the applicable Distribution
Date, automatically be applied as of that date by the Trustee to purchase shares
(or fractions thereof) of the Empire Builder at a net asset value as computed as
of the close of trading on the New York Stock Exchange on such date, as
described in the Empire Builder Prospectus. Unless otherwise indicated, new
Participants in the Empire Builder Plan will be deemed to have elected the
monthly distribution plan with respect to their Units. Confirmations of all
transactions undertaken for each Participant in the Plan will be mailed to each
such Participant by the Plan Agent indicating distributions and shares (or
fractions thereof) of the Empire Builder purchased on its behalf. A Participant
may at any time prior to ten days preceding the next succeeding distribution
date, by so notifying the Plan Agent in writing, elect to terminate its
participation in the Plan and receive future distributions on its Units in cash.
There will be no charge or other penalty for such termination. The Sponsors, the
Trustee, the Empire Builder and Glickenhaus, as investment advisor for Empire
Builder each will have the right to terminate this Plan at any time for any
reason. The reinvestment of distributions from the Trust through the Plan will
not affect the income tax status of such distributions. For more complete
information about investing in the Empire Builder through the Plan, including
charges and expenses, request a copy of the Empire Builder Prospectus from The
Bank of New York, Unit Investment Trust, P.O. Box 972, New York, New York
10269-0067. Read it carefully before you decide to participate.
279831.15
-34-
<PAGE>
[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal & Co.,
Inc., the Sponsors have entered into an arrangement (the "Plan") with Lebenthal
New York Municipal Bond Fund (the "Bond Fund") which permits Unit holders of the
Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Bond Fund. The Bond Fund is an open-end,
non-diversified investment company whose investment objective is to maximize
current income exempt from regular Federal income tax, and from New York State
and New York City income taxes, consistent with preservation of capital and with
consideration given to opportunities for capital gain. It is the policy of the
Bond Fund to invest primarily in long term investment grade tax-exempt
securities the interest income from which is exempt from such taxes.
The Bond Fund has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Bond Fund will be of
"investment grade" quality -- that is, at the time of purchase by the Bond Fund,
such bonds either will be rated not lower than the four highest ratings of
either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, A, A or BBB) or
will be unrated bonds which at the time of purchase are judged by the Bond
Fund's investment advisor to be of comparable quality to bonds rated within such
four highest grades. It is a fundamental policy of the Bond Fund that under
normal market conditions at least 80% of the income distributed to its
shareholders will be exempt from regular Federal income tax, and from New York
State and New York City personal income taxes. However, during times of adverse
market conditions, more than 20% of the Bond Fund's income distributions could
be subject to Federal income tax, New York State and/or New York City income
taxes, as described in the current prospectus relating to the Bond Fund (the
"Bond Fund Prospectus"). Lebenthal & Co., Inc., a sponsor of the Trust, acts as
the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the "Plan
Agent") a copy of the Bond Fund Prospectus describing the Bond Fund and a form
by which such Unit holder may elect to become a participant ("Participant") in
the Plan. Thereafter, as directed by such person, distributions on the
Participant's Unit will, on the applicable Distribution Date, automatically be
applied as of that date by the Trustee to purchase shares (or fractions thereof)
of the Bond Fund at a net asset value as computed as of the close of trading on
the New York Stock Exchange on such date, as described in the Bond Fund
Prospectus. Unless otherwise indicated, new Participants in the Bond Fund Plan
will be deemed to have elected the monthly distribution plan with respect to
their Units. Confirmations of all transactions undertaken for each Participant
in the Plan will be mailed to each Participant by the Plan Agent indicating
distributions and shares (or fractions thereof) of the Bond Fund purchased on
its behalf. A Participant may at any time prior to ten days preceding the next
succeeding distribution date, by so notifying the Plan Agent in writing, elect
to terminate its participation in the Plan and receive future distributions on
its Units in cash. There will be no charge or other penalty for such
termination. The Sponsors, the Trustee, the Bond Fund and Lebenthal & Co. Inc.,
as manager for the Bond Fund, each will have the right to terminate this Plan at
any time for any reason. The reinvestment of distributions from the Trust
through the Plan will not affect the income tax status of such distributions.
For more complete information about investing in the Bond Fund through the Plan,
including charges and expenses, request a copy of the Bond Fund Prospectus from
The Bank of New York, Unit Investment Trust, P.O. Box 972, New York, New York
10269-0067. Read it carefully before you decide to participate.
279831.15
-34-
<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State Municipal
Exempt Trust, Series 10 and all subsequent Series, including all Guaranteed
Series.
Glickenhaus, a New York limited partnership, is engaged in the
underwriting and securities brokerage business and in the investment advisory
business. It is a member of the New York Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. and is an associate member of the
American Stock Exchange. Glickenhaus acts as a sponsor for successive Series of
The Glickenhaus Value Portfolios and The Municipal Insured National Trusts, and
for the prior series of Empire State Municipal Exempt Trust, including those
sold under the name of Municipal Exempt Trust, New York Exempt Series 1, New
York Series 2 and New York Series 3. Glickenhaus, in addition to participating
as a member of various selling groups of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of securities
of such companies and sells securities to such companies in its capacity as a
broker or dealer in securities. The principal offices of Glickenhaus are located
at 6 East 43rd Street, New York, New York 10017.
Lebenthal, a New York corporation originally organized as a New York
partnership in 1925, has been buying and selling municipal bonds for its own
account as a dealer for over 73 years; Lebenthal also buys and sells securities
as an agent and participates as an underwriter in public offerings of municipal
bonds. It acted as a sponsor for Empire State Tax Exempt Bond Trust, Series 8
and successive Series of The Municipal Insured National Trust through Series 28.
Lebenthal is registered as a broker/dealer with the Securities and Exchange
Commission and various state securities regulatory agencies and is a member of
the National Association of Securities Dealers, Inc. and Securities Investors
Protection Corp. The principal offices of Lebenthal are located at 120 Broadway,
New York, New York 10271.
Limitations on Liability
The Sponsors are jointly and severally liable for the performance of
their obligations arising from their responsibilities under the Trust Agreement,
but will be under no liability to the Unit holders for taking any action or
refraining from any action in good faith or for errors in judgment; nor will
they be responsible in any way for depreciation or loss incurred by reason of
the sale of any Bonds, except in cases of their willful misconduct, bad faith or
gross negligence. See "The Trust--Portfolio" and "Sponsors--Responsibility."
Responsibility
The Trustee shall sell, for the purpose of redeeming Units tendered by
any Unit holder, and for the payment of expenses for which funds may not be
available, such of the Bonds in a list furnished by the Sponsors as the Trustee
in its sole discretion may deem necessary. In the event that the Trustee does
not exercise the right to obtain Permanent Insurance on a Defaulted Bond or
Bonds, to the extent that Bonds are sold which are current in payment of
principal and interest in order to meet redemption requests and Defaulted Bonds
are retained in the portfolio in order to preserve the related insurance
protection applicable to said Bonds, the overall value of the Bonds remaining in
the Trust's portfolio will tend to diminish. As to Series 18 and subsequent
Series, in the event that the Trustee does not exercise the right
279831.15
-35-
<PAGE>
to obtain Permanent Insurance on a Defaulted Bond or Bonds, except as described
below and in certain other unusual circumstances for which it is determined by
the Trustee to be in the best interests of the Unit holders or if there is no
alternative, the Trustee is not empowered to sell Defaulted Bonds for which
value has been attributed for the insurance obtained by the Trust. Because of
such restrictions on the Trustee, under certain circumstances the Sponsors may
seek a full or partial suspension of the right of Unit holders to redeem their
Units. See "Rights of Unit Holders--Redemption." The Sponsors are empowered, but
not obligated, to direct the Trustee to dispose of Bonds in the event of advance
refunding. It is the responsibility of the Sponsors to instruct the Trustee to
reject any offer made by an issuer of any of the Securities to issue new
obligations in exchange and substitution for any Securities pursuant to a
refunding or refinancing plan, except that the Sponsors may instruct the Trustee
to accept such an offer or to take any other action with respect thereto as the
Sponsors may deem proper if the issuer is in default with respect to such
Securities or in the judgment of the Sponsors the issuer will probably default
with respect to such Securities in the foreseeable future.
Any obligations so received in exchange or substitution will be held
by the Trustee subject to the terms and conditions of the Trust Agreement to the
same extent as Securities originally deposited thereunder. Within five days
after the deposit of obligations in exchange or substitution for underlying
Securities, the Trustee is required to give notice thereof to each Unit holder,
identifying the obligations eliminated and the Securities substituted therefor.
Except as stated in this and the preceding paragraph, the acquisition by the
Trust of any securities other than the Securities initially deposited is
prohibited.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor either pursuant to the
portfolio insurance with respect to the Trust or otherwise within 30 days, the
Trustee is required to notify the Sponsors thereof. If the Sponsors fail to
instruct the Trustee to sell or to hold such Bond within 30 days after
notification by the Trustee to the Sponsors of such default, the Trustee may in
its discretion sell the Defaulted Bond and not be liable for any depreciation or
loss thereby incurred. See "The Trust--Insurance on the Bonds."
The Sponsors may direct the Trustee to dispose of Bonds upon default
in the payment of principal or interest, institution of certain legal
proceedings or the existence of certain other impediments to the payment of
Bonds, default under other documents which may adversely affect debt service,
default in the payment of principal or interest on other obligations of the same
issuer, decline in projected income pledged for debt service on revenue Bonds,
or decline in price or the occurrence of other market factors, including advance
refunding, so that in the opinion of the Sponsors the retention of such Bonds in
a Trust would be detrimental to the interest of the Unit holders. The proceeds
from any such sales will be credited to the Principal Account of the affected
Trust for distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final distributions
to Unit holders, if the Trustee does not exercise the right to obtain Permanent
Insurance on any Defaulted Bond, because the portfolio insurance obtained by the
Trust is applicable only while Bonds so insured are held by the Trust, the price
to be received by the Trust upon the disposition of any such Defaulted Bond will
not reflect any value based on such insurance. Therefore, in connection with any
liquidation with respect to a Trust, it
279831.15
-36-
<PAGE>
shall not be necessary for the Trustee to, and the Trustee does not currently
intend to, dispose of any Bonds if retention of such Bonds, until due, shall be
deemed to be in the best interest of Unit holders, including, but not limited
to, situations in which Bonds so insured are in default and situations in which
Bonds so insured have a deteriorated market price resulting from a significant
risk of default. Since the Pre-insured Bonds will reflect the value of the
insurance obtained by the Bond issuer, it is the present intention of the
Sponsors not to direct the Trustee to hold any Pre- insured Bonds after the date
of termination. All proceeds received, less applicable expenses, from insurance
on Defaulted Bonds not disposed of at the date of termination will ultimately be
distributed to Unit holders of record as of such date of termination as soon as
practicable after the date such Defaulted Bonds become due and applicable
insurance proceeds have been received by the Trustee. See "Summary of Essential
Financial Information" in Part I of this Prospectus.
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of Essential
Information" in Part I of this Prospectus has been appointed by the other
Sponsor as agent for purposes of taking action under the Trust Agreement. In
those Trusts for which there is a sole Sponsor, references herein to the Agent
for Sponsors shall be deemed to refer to such sole Sponsor. If the Sponsors are
unable to agree with respect to action to be taken jointly by them under the
Trust Agreement and they cannot agree as to which Sponsor shall act as sole
Sponsor, then the Agent for Sponsors shall act as sole Sponsor. If one of the
Sponsors fails to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, that Sponsor is automatically discharged under the Trust Agreement
and the other Sponsor acts as the Sponsors.
Resignation
Any Sponsor may resign at any time provided that at the time of such
resignation one remaining Sponsor maintains a net worth of $1,000,000 and all
the remaining Sponsors are agreeable to such resignation. Concurrent with or
subsequent to such resignation, a new Sponsor may be appointed by the remaining
Sponsors and the Trustee to assume the duties of the resigning Sponsor. If, at
any time, only one Sponsor is acting under the Trust Agreement and that Sponsor
shall resign or fail to perform any of its duties thereunder or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may appoint a successor sponsor or terminate the
Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 1998, the total partners' capital of Glickenhaus was
$185,620,531 (audited); and at March 31, 1998, the total stockholders' equity of
Lebenthal was $6,083,285 (audited).
The foregoing information with regard to the Sponsors relates to the
Sponsors only, and not to any series of Empire State Municipal Exempt Trust.
Such information is included in this Prospectus only for the purpose of
informing investors as to the financial responsibility of the Sponsors and their
ability to carry out their contractual obligations shown herein. More
comprehensive financial information can be obtained upon request from any
Sponsor.
279831.15
-37-
<PAGE>
TRUSTEE
The Trustee is The Bank of New York, a trust company organized under
the laws of New York, having its offices at 101 Barclay Street, New York, New
York 10286, (800) 221-7771. The Bank of New York is subject to supervision and
examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law. The
Trustee must be a corporation organized under the laws of the United States or
the State of New York, which is authorized under such laws to exercise corporate
trust powers, and must have at all times an aggregate capital, surplus and
undivided profits of not less than $5,000,000 and its principal office and place
of business in the Borough of Manhattan, New York City. The duties of the
Trustee are primarily ministerial in nature. The Trustee did not participate in
the selection of Securities for the portfolio of any Series of the Trust.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of the disposition of any moneys,
Securities or certificates or in respect of any evaluation or for any action
taken in good faith reliance on prima facie properly executed documents except
in cases of its willful misconduct, bad faith, gross negligence or reckless
disregard for its obligations and duties. In addition, the Trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the Trust which the Trustee may be required to pay under current or
future law of the United States or any other taxing authority having
jurisdiction. See "The Trust--Portfolio."
Responsibility
For information relating to the responsibilities of the Trustee under
the Trust Agreement, reference is made to the material set forth under "Rights
of Unit Holders," "Sponsors--Responsibility" and "Sponsors-- Resignation."
Resignation
By executing an instrument in writing and filing the same with the
Sponsors, the Trustee and any successor may resign. In such an event the
Sponsors are obligated to appoint a successor trustee as soon as possible. If
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, or, in the case of Series 11 and subsequent
Series, if the Sponsors deem it to be in the best interest of the Unit holders,
the Sponsors may remove the Trustee and appoint a successor as provided in the
Trust Agreement. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor trustee. If, upon resignation or
removal of a trustee, no successor has been appointed and has accepted the
appointment within thirty days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only when the
successor trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor trustee.
279831.15
-38-
<PAGE>
EVALUATOR
The Evaluator is Muller Data Corporation, a New York corporation, with
main offices at 395 Hudson Street, New York, New York 10014. Muller Data
Corporation is a wholly owned subsidiary of Thomson Publishing Corporation, a
Delaware corporation.
Limitations on Liability
The Trustee and the Sponsors may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Trust Agreement shall be made in good
faith upon the basis of the best information available to it; provided, however,
that the Evaluator shall be under no liability to the Trustee, the Sponsors or
the Unit holders for errors in judgement. This provision shall not protect the
Evaluator in cases of its willful misconduct, bad faith, gross negligence or
reckless disregard of its obligations and duties.
Responsibility
The Trust Agreement requires the Evaluator to evaluate the Securities
on the basis of their bid prices on each business day after the initial offering
period, when any Unit is tendered for redemption and on any other day such
evaluation is desired by the Trustee or is requested by the Sponsors. For
information relating to the responsibility of the Evaluator to evaluate the
Securities on the basis of their offering prices, see "Public Offering--Offering
Price."
Resignation
The Evaluator may resign or may be removed by the Sponsors and the
Trustee, and the Sponsors and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor evaluator. If upon
resignation of the Evaluator no successor has accepted appointment within thirty
days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the Trust
Agreement without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision of the
Trust Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interest of the Unit holders; and the Sponsors and the Trustee may
amend the Trust Agreement with the consent of the holders of certificates
evidencing 66-2/3% of the Units then outstanding, provided that no such
amendment will reduce the interest in a Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units required to
consent to any such amendment without the consent of all the Unit holders. In no
event shall the Trust Agreement be amended to increase the number of Units
issuable thereunder or to permit the deposit or acquisition of securities either
in addition to or in substitution for any of the Bonds initially deposited in
the Trust, except in accordance with the provisions of the Trust Agreement. In
the event of any amendment, the Trustee is obligated to notify promptly all Unit
holders of the substance of such amendment.
279831.15
-39-
<PAGE>
The Trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the Securities. The Trustee
shall notify all Unit holders when the value of the Trust as shown by any
evaluation is less than $2,000,000 or less than 20% of the value of the Trust as
of the Date of Deposit, whichever is lower, at which time the Trust may be
terminated (i) by the consent of the holders of 66-2/3% of the Units or (ii) by
the Trustee; provided, however, that upon affirmative written notice of their
opportunity to object to such termination and to the Sponsors and the holders of
at least 33-1/3% of the Units do not instruct the Trustee not to terminate the
Trust. In no event, however, may the Trust continue beyond the Mandatory
Termination Date set forth in Part I of this Prospectus under "Summary of
Essential Financial Information"; provided, however, that prior to the Mandatory
Termination Date the Trustee shall not dispose of any Bonds if the retention of
such Bonds, until due, shall be deemed to be in the best interest of the Unit
holders of the affected Trust. In the event of termination, written notice
thereof will be sent by the Trustee to all Unit holders. Within a reasonable
period after termination, the Trustee will sell any remaining Securities and,
after paying all expenses and charges incurred by the Trust, will distribute to
each Unit holder, upon surrender for cancellation of its certificate for Units,
its pro rata share of the balances remaining in the Interest and Principal
Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters have been passed upon by Brown & Wood, One World
Trade Center, New York, New York 10048, as special counsel for the Sponsors as
to Series 9 through 64 and by Battle Fowler LLP, 75 East 55th Street, New York,
New York 10022 as special counsel for the Sponsors as to Series 65 and
subsequent Series of Empire State Municipal Exempt Trust, Guaranteed Series.
Winston & Strawn, 200 Park Avenue, New York, New York 10016, acts as counsel for
the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of this
Prospectus have been audited by Goldstein Golub Kessler LLP, independent
certified public accountants, as stated in their report with respect thereto,
and are included therein in reliance upon such report given upon their authority
as experts in accounting and auditing.
DESCRIPTION OF BOND RATINGS
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers or lessees. The bond rating is not a
recommendation to purchase, sell or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular investor.
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.
279831.15
-40-
<PAGE>
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 ascto the timely payment of interest and repayment of principal in
accordancecwith the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA: Bonds rated "AAA" have the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest and
repay principal is extremely strong.
AA: Bonds rated "AA" have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues
only in small degree.
A: Bonds rated "A" have a strong capacity to pay interest and
repay principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than bonds in higher rated categories.
BBB: Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications of
credit quality, the ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or
the risk of default
279831.15
-41-
<PAGE>
upon failure of, such completion. Accordingly, the investor should
exercise its own judgment with respect to such likelihood and risk.
NO: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
SP-1: Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
*Moody's rating. A summary of the meaning of the applicable rating symbols as
published by Moody's follows:
Aaa: Bonds which are rated "Aaa" are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise
what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds which are rated "Baa" are considered as medium
grade obligations; i.e, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments
279831.15
-42-
<PAGE>
or maintenance of other terms of the contract over any long period of
time may be small.
Con.(...): Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Moody's applies numerical modifiers "1," "2" and "3" in each rating
classification from "Aa" through "B" in its corporate rating system. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the security ranks in the lower end of its generic
rating category.
279831.15
-43-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
This Prospectus contains information concerning the
Trust and the Sponsors, but does not contain all the
information set forth in the registration statements EMPIRE STATE
and exhibits relating thereto, which the Trust has MUNICIPAL EXEMPT TRUST
filed with the Securities and Exchange Commission,
Washington, D.C. under the Securities Act of 1933
and the Investment Company Act of 1940, and to
which reference is hereby made. GUARANTEED SERIES
- -------------------------------------------------------
INDEX PROSPECTUS, PART II
- -------------------------------------------------------
Page
Sponsors:
THE TRUST................................................1
PUBLIC OFFERING.........................................15 GLICKENHAUS & CO.
6 East 43rd Street
ESTIMATED CURRENT RETURN AND ESTIMATED LONG- New York, New York 10017
TERM RETURN TO UNIT HOLDERS.........................18 (212) 953-7532
INSURANCE ON THE BONDS..................................19
LEBENTHAL & CO., INC.
TAX STATUS..............................................22 120 Broadway
New York, New York 10271
RIGHTS OF UNIT HOLDERS..................................25 (212)425-6116
AUTOMATIC ACCUMULATION ACCOUNT..........................34
SPONSORS ...............................................35
TRUSTEE ...............................................38
EVALUATOR...............................................39
AMENDMENT AND TERMINATION OF THE TRUST
AGREEMENT..........................................39
LEGAL OPINIONS..........................................40
AUDITORS ...............................................40
DESCRIPTION OF BOND RATINGS.............................40
- -------------------------------------------------------
No person is authorized to give any information or to
make any representations not contained in this
Prospectus and any information or representation
not contained herein must not be relied upon as
having been authorized by the Trust or the Sponsors.
This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, securities in any
state to any person to whom it is not lawful to make
such offer in such state.
- -------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
279831.15
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet (incorporated by reference to the Cross-Reference
Sheet to the Form S-6 Registration Statement of Empire State Municipal Exempt
Trust, Guaranteed Series 133).
The Prospectus.
Signatures.
Written Consent of the following persons:
Consents of Independent Auditors.
Consent of Counsel (previously filed)
Consent of the Evaluator including Confirmation of Ratings (included in
Exhibit 99.5.1).
The following exhibits:
*99.5.1 -- Consent of the Evaluator including Confirmation of Ratings and
Affirmation Letter of Standard & Poor's.
99.6.1 -- Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to Form S-6
Registration Statement No. 33-17307 of Empire State
Municipal Exempt Trust, Guaranteed Series 134 on April 2,
1997 and Post-Effective Amendment No. 7 to Registration
Statement No. 33-40723 of Empire State Municipal Exempt
Trust, Guaranteed Series 77 on November 25, 1997, and
incorporated herein by reference).
99.6.2 -- Copies of Powers of Attorney of Directors and certain officers of
Lebenthal & Co., Inc. (filed as Exhibit 6.2 to Amendment No. 1 to
Form S-6 Registration Statement No. 33-55385 of Empire State
Municipal Exempt Trust, Guaranteed Series 109 on November 2, 1994,
and incorporated herein by reference).
*27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Being filed by this Amendment.
II-1
798476.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 138 and
Guaranteed Series 139, certify that they have met all of the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933. The registrants have
duly caused this Post-Effective Amendment to the Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 28th day of January, 1999.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 138 AND GUARANTEED SERIES 139
(Registrant)
GLICKENHAUS & CO.
(Depositor)
By: /s/ Michael J. Lynch
--------------------------------
Michael J. Lynch
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933, this
Post- Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Name Title Date
ALFRED FEINMAN* General Partner ) January 28, 1999
)
)
JAMES M. GLICKENHAUS General Partner )
)
SETH M. GLICKENHAUS* General Partner, )
Chief Investment Officer ) By:/s/Michael J. Lynch
) -------------------
) Attorney-in-Fact*
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Registration Statement No. 333-17307 on April 2, 1997 and Post-Effective
Amendment No. 7 to Registration Statement No. 33-40723 on November 25,
1997.
II-2
798476.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 138 and
Guaranteed Series 139, certify that they have met all of the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933. The registrants have
duly caused this Post-Effective Amendment to the Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 28th day of January, 1999.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 138 AND GUARANTEED SERIES 139
(Registrant)
LEBENTHAL & CO., INC.
(Depositor)
By: /s/ D. Warren Kaufman
-----------------------
D. Warren Kaufman
(Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Post- Effective Amendment to the Registration Statement has been signed below by
the following persons, in the capacities and on the dates indicated.
Name Title Date
H. GERARD BISSINGER, II* Director )
) January 28, 1999
JEFFREY M. JAMES* Director )
)
/s/ D. Warren Kaufman Director ) By:/s/ D. Warren Kaufman
- --------------------- ) ---------------------
D. WARREN KAUFMAN ) D. Warren Kaufman
) Attorney-in-Fact*
ALEXANDRA LEBENTHAL* Director, President )
)
JAMES A. LEBENTHAL* Director, Chief )
Executive Officer )
)
JAMES E. MCGRATH** Director )
)
DUNCAN K. SMITH* Director )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2,
1994.
** An executed copy of the Power of Attorney was filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 333-42453 on May 18, 1998.
II-3
798476.1
<PAGE>
CONSENT OF COUNSEL
The consent of Battle Fowler LLP to the use of their name in the
Prospectus included in the Registration Statement is contained in their opinion
filed previously.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of
EMPIRE STATE MUNICIPAL EXEMPT TRUST GUARANTEED SERIES 138
AND GUARANTEED SERIES 139
We hereby consent to the use in Post-Effective Amendment No. 1 to
Registration Statement No. 333-30481 of our opinions dated October 30, 1998
relating to the financial statements of Empire State Municipal Exempt Trust,
Guaranteed Series 138 and Guaranteed Series 139 and to the reference to our firm
under the heading "Auditors" in the Prospectus which is a part of such
Registration Statement.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 28, 1999
798476.1
<PAGE>
MULLER DATA CORPORATION
-----------------------
Thomson Financial Services
January 14, 1999
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co.
120 Broadway
New York, New York 10271
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUST
Series 138 & 139: Post - Effective Amendment No. 1
Gentlemen:
We have examined the post-effective Amendment to the Registration Statement,
File No. 333-30481, for the referenced Trusts and acknowledge that Muller Data
Corporation is currently acting as the evaluator for the Empire State Municipal
Exempt Trust Series 138 and 139. Subsequently, we hereby consent to the
reference of Muller Data Corporation as Trust evaluator in the post-effective
Amendment.
In addition, we confirm that the ratings of the bonds comprising the portfolios
of the Trusts, as indicated in the Amendment to the Registration Statement, are
the ratings currently indicated in our Muniview data base.
You are hereby authorized to file a copy of this letter with the Securities and
Exchange Commission.
Sincerely,
- ---------------
Art Brasch
Vice President
395 Hudson Street - New York, NY 10014
Ph. 212-807-3840
Fx. 212-989-1938
www.muller.com
<PAGE>
Managed Funds Ratings
25 Broadway
New York, NY 10004-1064
Tel 212 208 8000
Fax 212 208 8034
Standard & Poor's
A Division of the MCGraw-Hill Companies
January 28, 1999
Glickenhaus & Company
6 East 43rd Street
New York, NY 10017
Re: ESMET Guaranteed Series 138, ESMET Guaranteed Series 139
It is our understanding that you are filing with the Securities and
Exchange Commission a Post Effective Amendment to the above captioned trust, SEC
file number 333-30481.
Since the portfolio is composed solely of securities covered by bond
insurance policies that insure against default in the payment of principal and
interest on the securities for so long as they remain outstanding and such
policies have been issued by one or more insurance companies which have been
assigned `AAA' claims paying ability ratings by Standard & Poor's, we reaffirm
the assignment of a `AAA' rating to the units of the trust and a `AAA' rating to
the securities contained in the trust.
Standard & Poor's will maintain surveillance on the `AAA' rating until
February 28, 2000. On this date, the rating will be automatically withdrawn
by Standard & Poor's unless a post effective letter is requested by the trust.
You have permission to use the name of Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. and the above-assigned
ratings in connection with your dissemination of information relating to these
units, provided that it is understood that the ratings are not "market" ratings
nor recommendations to buy, hold, or sell the units of the trust or the
securities in the trust. Further, it should be understood that the rating on the
units does not take into account the extent to which fund expenses or portfolio
asset sales for less than the fund's purchase price will reduce payment to the
unit holders of the interest and principal required to be paid on the portfolio
assets. Standard & Poor's reserves the right to advise its own clients,
subscribers, and the public of the ratings. Standard & Poor's relies on the
sponsor and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the ratings.
Standard & Poor's does not independently verify the truth or accuracy of any
such information.
This letter evidences our consent to the use of the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. in
connection with the rating assigned to the units in the amendment referred to
above. However, this letter should not be construed as a consent by us, within
the meaning of Section 7 of the Securities Act of 1933, to the use of the name
of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. in connection with the ratings assigned to the securities contained in the
trust. You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Please be certain to send a copy of your final prospectus as soon as
it becomes available. Should we not receive it within a reasonable time after
the closing or should it not conform to the representations made to us, we
reserve the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you. If
we can be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford B. Bragg
Managing Director
<PAGE>
