Registration No. 333-64849
Pursuant to Rule 497(b)
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8,000 UNITS
DATED: FEBRUARY 17, 1999
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 144
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No person is authorized to give any information or to Parts A, B and C of this Prospectus do not contain
make any representations not contained in Parts A, B all of the information set forth in the
and C of this Prospectus; and any information not registration statement and exhibits relating
contained herein must not be relied upon as having been thereto, filed with the Securities and Exchange
authorized by the Trust, the Trustee, the Evaluator, or Commission, Washington, D.C. under the Securities
the Sponsors. The Trust is registered as a unit Act of 1933, and the Investment Company Act of
investment trust under the Investment Company Act of 1940, and to which reference is made.
1940. Such registration does not imply that the Trust
or any of its Units have been guaranteed, sponsored, This Prospectus does not constitute an offer to
recommended or approved by the United States or any sell, or a solicitation of an offer to buy,
state or any agency or officer thereof. securities in any state to any person to whom it
is not lawful to make such an offer in such state.
Table of Contents PROSPECTUS PART A. This Prospectus consists of
Part A three parts. This Part A may not be distributed
Summary of Essential Information A-2 unless accompanied by Parts B and C. Please read
Report of Independent Auditors A-7 and retain each of the parts of this Prospectus
Statement of Condition A-8 for future reference.
Portfolio A-9
Underwriting Account A-11 The Empire State Municipal Exempt Trust,
Part B Guaranteed Series 144 (the "Trust"), is one of a
The Trust B-1 series of similar but separate unit investment
Public Offering B-7 trusts formed for the purpose of obtaining
Estimated Current Return and tax-exempt interest income through an investment
Estimated Long-Term Return in a fixed insured portfolio consisting primarily
to Unit Holders B-11 of various long-term municipal bonds with average
Insurance on Bonds B-11 maturities of over 10 years. The Sponsors of the
Tax Status B-14 Trust are Glickenhaus & Co. and Lebenthal & Co.,
Rights of Unit Holders B-18 Inc. Units of the Trust will be offered to
Automatic Accumulation Account B-24 residents of New York, Connecticut, Pennsylvania
Sponsors B-25 and Florida. On the Date of Deposit, all of the
Trustee B-27 Units and the Bonds while in the Trust will be
Evaluator B-27 rated AAA by Standard & Poor's Ratings Services, A
Amendment and Termination of Division of The McGraw-Hill Companies ("Standard &
the Trust Agreement B-28 Poor's") and Moody's Investors Service, Inc.
Legal Opinions B-28 ("Moody's") will assign a rating of "Aaa" to all
Auditors B-28 of the Bonds in the Trust, as insured. The value
Description of Bond Ratings B-28 of the Units of the Trust will fluctuate with the
Part C value of the underlying Bonds.
Special Factors Affecting New York C-1 Minimum purchase: 1 Unit.
Puerto Rico Bonds C-5
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT FEBRUARY 16, 1999 (1):
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO. TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
DATE OF DEPOSIT: FEBRUARY 17, 1999
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Aggregate Principal Amount of Bonds in Trust: $ 8,000,000.00(2)
Number of Units: 8,000
Fractional Undivided Interest in Trust Per Unit: 1/8,000
Total Value of Securities in Portfolio (Based on Offering Side Valuations of Securities): $ 7,571,502.50
===============
Sponsors' Initial Repurchase Price Per Unit (Total Value of Securities divided by 8,000 Units): $ 946.44(3)
Plus Sales Charge of 4.9% (on sales of fewer than 250 Units) (4): $ 48.76
Plus Organization Costs(5): $ 2.81
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Public Offering Price Per Unit: $ 998.01(6)
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Redemption Price Per Unit: $ 938.95(7)
Excess of Public Offering Price Over Redemption Price Per Unit: $ 59.06
Excess of Public Offering Price Over Sponsors' Initial Repurchase Price Per Unit: $ 51.57
Weighted Average Maturity of Bonds in the Trust: 29.50 Years
Evaluation Time: 12:00 P.M. New York Time on the initial Date of Deposit and 2:00 P.M. New York Time
thereafter.
Annual Insurance Premium (8): $1,812.00
Evaluator's Fee: $.55 per Bond for each valuation.
Trustee's Annual Fee(13): For each $1,000 principal amount of Bonds in the Trust, $1.14 under the monthly and $.74
under the semi-annual distribution plan.
Sponsors' Annual Fee: Maximum of $0.25 per $1,000 principal amount of underlying Securities. See "The
Trust--Expenses and Charges."
Sponsors' Profit (Loss) on Deposit: $51,982.70
Mandatory Termination Date: August 1, 2038
First Settlement Date: February 22, 1999
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which Trust
Agreement May be Terminated: $1,600,000 or 20% of the principal amount of the Bonds deposited in
Trust, whichever is lower.
Monthly Semi-Annual
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Estimated Annual Interest Income (includes cash income accrued only): $46.47 $46.47
P Less Annual Premium on Portfolio Insurance: .23 .23
E Less Estimated Annual Expenses (9): 1.93 1.43
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R Estimated Net Annual Interest Income: $44.31 $44.81
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Estimated Interest Distribution (10): $ 3.69 $22.41
U Estimated Current Return Based on Public Offering Price (includes cash 4.44% 4.49%
N income accrual only) (11):
I Estimated Long-Term Return (12): 4.51% 4.56%
T Estimated Daily Rate of Net Interest Accrual: $.123083 $.124472
Record Dates: 15th Day of Month 15th Day of
May and November
Payment Dates: 1st Day of Month 1st Day of
June and December
(continued on following page)
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Notes to Summary of Essential Information
(1) The business day prior to the date of this Prospectus. The date of this
Prospectus is the date on which the Trust Agreement was signed and the deposit
with the Trustee was made.
(2) If a Replacement Bond is not acquired when a contract for the purchase of
Bonds fails, the aggregate principal amount of the Bonds may be reduced. See
"The Trust--General Considerations" in Part B.
(3) Based, during the initial offering period, solely upon the offering prices
of the Securities and thereafter on the bid prices of such Securities. See "The
Trust--Market for Units" in this Part A.
(4) After the initial offering period, Units may be available for purchase from
the Sponsors at a price based upon the aggregate bid price of the Bonds in the
Trust (as determined by the Evaluator) plus a sales charge determined in
accordance with the schedule set forth in "Public Offering--Offering Price" in
Part B of this Prospectus, which is based upon the maturities of each Bond in
the Trust. A pro rata portion of organization costs will not be added to the
Public Offering Price per Unit after the initial offering period.
(5) Investors will bear all or a portion of the costs incurred in organizing the
Trust (the "organization costs") -- including costs of preparing the
registration statement, the trust indenture and other closing documents,
registering units with the SEC and the states and the initial audit of the
Trust's portfolios.
(6) No accrued interest will be added to the Public Offering Price in connection
with purchases of Units contracted for on February 17, 1999. With respect to
purchases contracted for after such date, accrued interest from February 22,
1999 to, but not including, the date of settlement (normally three business days
after order) will be added to the Public Offering Price.
(7) Based solely upon the bid prices of the Securities. Upon tender for
redemption, the price to be paid will include accrued interest as described in
"Rights of Unit Holders--Redemption--Computation of Redemption Price per Unit"
in Part B.
(8) Based upon the aggregate principal amount of the Bonds in the Trust. If the
Trustee had exercised its right to obtain Permanent Insurance on all of the
Bonds in the Trust as of the Date of Deposit, the total cost of the Permanent
Insurance premiums for such insurance would have been $21,190.00.
(9) Excluding insurance costs.
(10) The first monthly interest distribution of $2.83 per Unit will be made on
April 1, 1999 (the "First Distribution Date") to all monthly certificateholders
of record March 15, 1999 (the "First Record Date"). The regular monthly payment
will be $3.69 on May 1, 1999 and thereafter. The first semi-annual interest
distribution of $10.33 per Unit will be made on June 1, 1999 to all semi-annual
certificateholders of record on May 15, 1999. The regular semi-annual payment
will be $22.41 on December 1, 1999 and thereafter. In order to reduce the amount
of accrued interest investors have to pay in addition to the Public Offering
Price, the Trustee has agreed to advance to the Trust the amount of accrued
interest due on Securities through and including February 22, 1999. This accrued
interest will be paid to the Sponsors as the holders of record of all Units on
such date. Consequently, when the Sponsors sell Units, the amount of accrued
interest to be added to the Public Offering Price of the Units purchased by an
investor will include only accrued interest from February 22, 1999 to but not
including the date of settlement of the investor's purchase (normally three
business days after the purchase contract), less any distributions from the
Interest Account. Since a person who contracts to purchase Units on February 17,
1999 will settle his purchase on February 22, 1999, no accrued interest will be
added to the Public Offering Price of Units settled on that date. The Trustee
will recover its advancements (without interest or other cost to the Trust) from
interest received on the Securities deposited in the Trust. See "Rights of Unit
Holders--Redemption--Computation at Redemption Price per Unit" in Part B.
(11) Calculated after payment of insurance premiums payable by the Trust. The
Estimated Current Return on such date on an identical portfolio without such
insurance would have been 4.46% based on the monthly payment plan and 4.51%
based on the semi-annual payment plan. See "Tax Status" and "Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part B.
(12) Calculated after payment of insurance premiums payable by the Trust. The
Estimated Long-Term Return on such date on an identical portfolio without such
insurance would have been 4.53% based on the monthly payment plan and 4.58%
based on the semi-annual payment plan. See "Estimated Current Return and
Estimated Long-Term Return to Unit Holders" in Part B.
(13) During the first year, the Trustee's fee will be adjusted downward by $.49
per Unit; interest income will be $45.98 per Unit; estimated expenses per Unit
exclusive of insurance costs under the monthly and semi-annual distribution plan
will be $1.44 and $.94 respectively; and estimated net interest income per Unit
will remain the same as shown. The Trustee has agreed to the foregoing to cover
interest on any Bonds accruing prior to their expected dates of delivery since
interest will not accrue to the benefit of Unit holders until such Bonds are
actually delivered to the Trust See "Distribution of Interest and Principal."
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The Trust. Certain of the Bonds in the Trust may be purchased at prices which
result in the portfolio as a whole being purchased at a discount due to original
issue discount, market discount or the inclusion of zero coupon bonds. Bonds
selling at market discount tend to increase in market value as they approach
maturity when the principal amount is payable, thus increasing the potential for
gain (all or a portion of which may be taxable as ordinary income). Any income
other than any earned original issue discount will be taxable and will not be
realized until maturity, redemption or sale of the underlying Bonds or Units of
the Trust. In the case of Bonds acquired at a market discount, gain will be
treated as ordinary income to the extent of accrued market discount. At the time
of the original issuance of the Bonds held by the Trust, opinions relating to
the validity of the Bonds and the exemption of interest thereon from Federal
income tax and New York State and City personal income tax were (or with respect
to "when-issued" Bonds will be) rendered by bond counsel to the issuing
governmental authority. The continued tax-exempt status will depend upon the
issuer's ability to comply with the provisions of the Internal Revenue Code of
1986, as amended. See "Tax Status" in Part B. On the Date of Deposit, the
Sponsors, acting for the Underwriting Account (see "Underwriting Account" in
this Part A), deposited with the Trustee delivery statements relating to
contracts for the purchase of $8,000,000 aggregate principal amount for the
interest-bearing obligations, including funds (represented by cash, cash
equivalents and/or an irrevocable letter of credit issued by a major financial
institution) for the purchase of certain such obligations (the "Bonds" or the
"Securities"). The Trustee thereafter delivered to the Sponsors a registered
certificate of 8,000 Units, representing the entire ownership of the Trust,
which Units are being offered hereby.
The Portfolio. The portfolio of the Trust contains contracts to purchase 6
issues of Bonds issued by entities located in New York or certain United States
territories or possessions, including Puerto Rico, and their public authorities.
See "Special Factors Affecting New York" and "Puerto Rico Bonds" in Part C for a
discussion of risk factors. Except as described below, all such contracts are
expected to be settled by February 22, 1999. The following information is being
supplied to inform Unit holders of circumstances affecting the Trust. None of
the aggregate principal amount of the Bonds in the portfolio are general
obligations of the governmental entity issuing them which are backed by the
taxing power thereof. None of the aggregate principal amount of the Bonds in the
portfolio are payable from appropriations. 100% of the aggregate principal
amount of the Bonds in the portfolio are payable from the income of specific
projects or authorities and are not supported by the issuers' power to levy
taxes. Although income to pay such Bonds may be derived from more than one
source, the primary sources of such income, the number of issues (and the
related dollar weighted percentage of such issues) deriving income from such
sources and purpose of issue are as follows: Health Care, 1 (18.75%); Higher
Education, 1 (3.12%); Special Tax, 1 (22.12%); Transportation, 2 (34.13%); and
Water & Sewer, 1 (21.88%). The Trust is deemed to be concentrated in the
[Transportation] category.* Prior to their deposit in the Trust, all of the
issues (100%) were rated AAA by Standard and Poor's. See "Description of Bond
Ratings" in Part B. For a more detailed discussion, it is recommended that Unit
holders consult the official statements for each security in the portfolio of
the Trust. None of the Bonds initially deposited in the Trust have been
purchased on a "when issued" basis and one of the Bonds initially deposited in
the Trust have been purchased on a delayed settlement basis. Normally, delivery
of "when issued" Bonds and delayed settlement Bonds are expected to take place
within 30 days after the First Settlement Date. Accordingly, delivery may be
delayed or may not occur. Interest on such Bonds begins accruing to the benefit
of Unit holders on the date of delivery. Holders of Units will be "at risk" with
respect to such Bonds (i.e., may derive either gain or loss from fluctuations in
the offering side valuation of such Bonds) from the date they commit for Units.
Moreover, the insurance on the Bonds in the portfolio obtained by the Trust does
not cover such Bonds until they are delivered to the Trust. See "The
Trust--General Considerations" in Part B. 100% of the aggregate principal amount
of the Bonds in the Trust are original issue discount bonds. Of these original
issue discount bonds, all have mandatory sinking fund installment provisions at
redemption prices equal to the compound accreted value on the date of
redemption. Of these original issue discount bonds, none are zero
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* A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or
more of the aggregate face amount of the portfolio. See "The Trust--General
Considerations" in Part B of this Prospectus.
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coupon bonds. (See "Original Issue Discount and Zero Coupon Bonds" in Part B).
On the Date of Deposit, based on the offering side valuation, none of the
aggregate principal amount of the Bonds were at par, 100% of the aggregate
principal amount of the Bonds were at a discount from par and none of the
aggregate principal amount of the Bonds were at a premium.
An investment in Units of the Trust should be made with an understanding of the
risks entailed in investments in fixed-rate bonds, including the risk that the
value of such bonds (and, therefore, of the Units) will decline with increases
in interest rates or a decrease in the federal or New York State income tax
rate. Inflation and recession, as well as measures implemented to address these
and other economic problems, contribute to fluctuations in interest rates and
the values of fixed-rate bonds generally. Additionally, changes in the tax
treatment of bonds may have an adverse impact on the value of the Units. The
Sponsors cannot predict future economic policies or their consequences, nor can
they predict the course or extent of such fluctuations in the future. Some of
the Bonds in the Trust may also have been previously insured by insurance
obtained by the issuers of such Bonds or by persons other than the Trust
("Pre-insured Bonds"). Five of the issues (77.88%) initially deposited in the
Trust were Pre-insured Bonds. All of the Bonds in the Trust are covered by
policies of insurance obtained from the MBIA Insurance Corporation (the
"Insurer") guaranteeing payment of principal and interest when due. As a result
of such issuance, the Bonds in the Trust have received a rating of "Aaa" by
Moody's and both the Bonds in the Trust and the Units of the Trust have received
a rating of "AAA" by Standard & Poor's. For the meanings of these ratings see
"Description of Bond Ratings" in Part B.
Risk Factors. Insurance does not protect against the risk of market fluctuations
on the underlying bonds in the Trust's portfolio and of the units of the Trust.
No assurance can be given that the Trust's objectives will be achieved as these
objectives are subject to the continuing ability of the respective issuers of
the bonds to meet their obligations or of the insurer to meet its obligations
under the insurance. In addition, an investment in Units of the Trust should be
made with an understanding of the risks entailed in investments in fixed-rate
bonds, including the risk that the value of such bonds (and, therefore, of the
Units) will decline with increases in interest rates or a decrease in the
federal or New York State income tax rate. Additionally, changes in the tax
treatment of bonds may have an adverse impact on the value of the Units.
There can be no assurance that the economic and political conditions on which
the ratings of the Bonds in any Trust are based will continue or that particular
Bond issues may not be adversely affected by changes in economic, political or
other conditions that do not affect the ratings by either Standard & Poor's or
Moody's. In the event a Bond's rating is downgraded to below investment grade
(i.e., "high yield" or "junk bond" status), such a Bond, as compared to an
investment grade bond, is subject to greater risk of downward price volatility
in periods of economic uncertainty. If a Bond in the Trust is downgraded to high
yield bond status, a decrease in the net asset value of the Trust may result. If
such a decrease in net asset value occurs and Units of the Trust are tendered
for redemption, the Trust may be forced to liquidate some of the Bonds at a
loss. If such redemptions are substantial enough, this could trigger a complete
and unexpected liquidation of the Trust before maturity, resulting in
unanticipated losses for investors. There is also risk involved with the
purchase of bonds on a "when issued" or delayed settlement basis. See "The
Trust--General Considerations" in Part B. The financial condition of the State
of New York is affected by various national, economic, social and environmental
policies and conditions which may affect the ability of the issuers of the Bonds
to satisfy their obligations. The economy of the State continues to be
influenced by the financial health of the City of New York, which faces greater
competition as other major cities develop financial and business capabilities.
For further information concerning New York risk factors see "Special Factors
Affecting New York" in Part C.
Distributions. Distributions of interest received by the Trust, pro rated on an
annual basis, will be made semi-annually unless the Unit holder elects to
receive them monthly. The first monthly distribution will be $2.83. Units of the
Trust and will be made on April 1, 1999, to monthly Unit holders of record on
March 15, 1999, and $3.69 thereafter. The first semi-
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annual distribution will be $10.33 for Units of the Trust and will be made on
June 1, 1999, to semi-annual Unit holders of record on May 15, 1999, and $22.41
thereafter. See "Rights of Unit Holders--Distribution of Interest and Principal"
in Part B of this Prospectus.
Each Unit of the Trust at the Date of Deposit represents 1/8,000 fractional
undivided interest in the $8,000,000 face amount of underlying Bonds and net
income of the Trust in the ratio of 1 Unit for each $1,000 principal amount of
underlying Bonds (including contracts and funds for the purchase thereof) in the
Trust.
Public Offering Price. The Public Offering Price of the Units of the Trust
during the initial offering period is equal to the aggregate offering price of
the Securities in the respective Trust's portfolio divided by the number of
Units outstanding, plus a sales charge equal to 4.9% of such aggregate offering
price of Securities per Unit on sales of fewer than 250 Units and a pro rata
portion of estimated organization costs. In addition, for Units ordered after
the date hereof, accrued interest will be payable from the First Settlement Date
for Units of the Trust (three business days from the date hereof) to the
expected date of settlement (three business days after order). However, after
the initial offering period the Public Offering Price of the Units will not
include a pro rata portion of estimated organization costs. For additional
information regarding the Public Offering Price, the descriptions of interest
and principal distributions, repurchase and redemption of Units and other
essential information regarding the Trust, see the "Summary of Essential
Information" in this Part A. During the initial public offering period, sales of
at least 250 Units will be entitled to a volume discount from the Public
Offering Price. See "Public Offering--Offering Price" in Part B. If the Units of
the Trust had been available for sale on February 16, 1999, the Public Offering
Price per Unit would have been $998.01. During the initial public offering
period of the Trust, investors in any unit investment trust with a fixed income
portfolio (including, but not limited to, any Exchange Trusts, see "Exchange
Option" in Part B) can purchase Units of the Trust in an amount not greater than
the amount of said investment at a discount from the public offering price of
$10.00 per Unit.
Taxes. 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 (the "Code").
See "The Trust -- Tax Status" in Part B of this Prospectus. Investors should
consult their personal tax advisor to determine the federal, state and local
income tax consequences of purchasing, owning and selling Units.
The Insurer. The Insurer is the principal operating subsidiary of MBIA Inc., a
New York Stock Exchange listed company. MBIA Inc. is not obligated to pay the
debts of or claims against the Insurer. The Insurer is a limited liability
corporation rather than a several liability association. The Insurer is
domiciled in the State of New York and licensed to do business in 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, the Insurer 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 September 30, 1998, the Insurer had assets of $6.3 billion
(unaudited), total liabilities of $4.1 billion (unaudited) , and total capital
and surplus of $2.2 billion (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of the Insurer's year end financial statements prepared in
accordance with statutory accounting practices are available from the Insurer.
The address of the Insurer is 113 King Street, Armonk, New York 10504.
No representation is made herein as to the accuracy 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.
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Sponsors. The total partners' capital of Glickenhaus at September 30, 1998 was
$185,620,531(audited); and the total stockholders' equity of Lebenthal at March
31, 1998 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.
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REPORT OF INDEPENDENT AUDITORS
The Sponsors, Trustee, and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 144
We have audited the Statement of Condition of Empire State Municipal Exempt
Trust, Guaranteed Series 144, including the Portfolio as of the opening of
business on February 17, 1999. This financial statement is the responsibility of
the Sponsors. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by the
Sponsors, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion. An
irrevocable letter of credit deposited on February 17, 1999 in the amount
required to purchase securities, as described in the Statement of Condition, was
confirmed to us by the Trustee.
In our opinion, the Statement of Condition referred to above presents fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 144 at the opening of business on February 17, 1999 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
New York, New York
February 17, 1999
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EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 144
STATEMENT OF CONDITION AS OF DATE OF DEPOSIT
AS OF THE OPENING OF BUSINESS, FEBRUARY 17, 1999
TRUST PROPERTY
Investment in Securities:
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Contracts to purchase underlying Securities (1)(2)........................ $7,571,502.50
Accrued interest receivable (2)................................................. 71,070.41
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Total............................................................. $7,642,572.91
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LIABILITIES AND INTEREST OF UNIT HOLDERS
Liabilities:
Accrued interest receivable (2)........................................... $ 71,070.41
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$ 71,070.41
Interest of Unit holders:
Units of fractional undivided interest outstanding (8,000):
Cost to investors (3)..................................................... 7,984,080.00
Less-Organization Costs (4)............................................... 22,500.00
Less--gross underwriting commission (5)................................... 390,077.50
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Net interest of Unit holders.................................................... 7,571,502.50
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Total............................................................. $7,642,572.91
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(1) Aggregate cost to the Trust of the Securities listed under
"Portfolio" is based on offering side valuation determined by the Evaluator on
the basis set forth under "Public Offering--Offering Price" in Part B. The
aggregate bid side evaluation of the Securities in the portfolio, as determined
by the Evaluator, as of the Date of Deposit was $7,511,572.30. An irrevocable
letter of credit issued by Bankers Trust, in an aggregate amount equal to or in
excess of $7,647,897.49 has been deposited with the Trustee. The amount of such
letter of credit includes: $7,571,502.50, the amount required to purchase the
tax-exempt securities listed in the related portfolio, plus $76,394.99 covering
accrued interest through expected dates of delivery.
(2) On the basis set forth under "Rights of Unit Holders--Distribution
of Interest and Principal" in Part B the Trustee will advance an amount equal to
the accrued interest on the Securities as of February 22, 1999 (the "First
Settlement Date") plus any cash received by the Trustee with respect to interest
on the Securities prior to such date, and the same will be distributed to the
Sponsors on the First Settlement Date. Consequently, the amount of interest
accrued on a Unit to be added to the public offering price thereof will include
only such accrued interest from the First Settlement Date to the date of
settlement, less all withdrawals and deductions from the Interest Account
subsequent to the First Settlement Date made with respect to the Unit.
(3) Aggregate public offering price (exclusive of interest) is
computed on 8,000 Units on the basis set forth above under "Public Offering--
Offering Price" in Part B.
(4) A portion of the Public Offering Price consists of an amount
sufficient to pay for all or a portion of the costs of establishing a Trust.
These costs have been estimated at $2.81 per Unit for the Trust.
(5) A sales charge of 4.9% computed on 8,000 Units. See "Public
Offering--Offering Price" in Part B for volume discounts on sales of 250 Units
or more.
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EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 144
Portfolio as of the Opening of Business, February 17, 1999
Redemption Features
Port- Coupon Ant.--Anticipated Yield Cost of
folio Rating Principal Represented by Contracts to Rate and S.F.--Sinking Fund to Securities
No. (1)(2) Amount (3) Purchase Securities (4) Maturity Opt.--Optional (5) Maturity to Trust(6)(7)
- ------- ------- ---------- --------------------------- -------- ------------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 AAA/Aaa $1,500,000 Dormitory Authority of the State of 5.000% 08/01/13 @ 100 Ant. 5.044% $1,488,750.00
New York Sisters of Charity Health 08/01/38 02/01/09 @ 101 Opt.
Care System Corporation FHA-
Insured Mortgage Hospital Revenue
Bonds, Series 1999 (MBIA Insured)
2 AAA/Aaa 1,750,000 New York City Municipal Water 4.750 06/15/22 @ 100 S.F. 5.000 1,686.212.50
Finance Authority Water and Sewer 06/15/25 06/15/08 @ 101 Opt.
System Revenue Bonds, Fiscal 1998
Series D (MBIA Insured)
3 AAA/Aaa 1,230,000 Metropolitan Transportation 4.750 07/01/22 @ 100 S.F. 5.012 1,183,875.00
Authority Transit Facilities Revenue 07/01/24 07/01/08 @ 101 Opt.
Bonds, Series 1998A (MBIA Insured)
4 AAA/Aaa 250,000 Dormitory Authority of the State of 4.750 07/01/26 @ 100 S.F. 5.000 240,415.00
New York St. John's University 07/01/28 07/01/08 @ 101 Opt.
Insured Revenue Bonds, Series 1998
(MBIA Insured)
5 AAA/Aaa 1,500,000 The Port Authority of New York and 4.250 10/01/19 @ 100 S.F. 4.988 1,335,000.00
New Jersey Consolidated Bonds, One 10/01/26 11/01/05 @ 101 Opt.
Hundred Sixteenth Series (FGIC
Insured)
6 AA/Aaa 1,770,000 New York City Transitional Finance 4.500 11/15/24 @ 100 S.F. 4.994 1,637,250.00
Authority Future Tax Secured Bonds 11/15/27 05/15/08 @ 101 Opt.
Fiscal 1998 Series B
----------- -------------
$ 8,000,000 $7,571,502.50
=========== =============
</TABLE>
A-9
675530.2
<PAGE>
Notes to Portfolio
The symbol "NR" denotes a non-rated issue of Bonds.
(1) All ratings except those identified by an asterisk (*) are by Standard
& Poor's. A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers or lessees. The bond rating is not a
recommendation to purchase, sell or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular investor. A brief
description of the rating symbols and their meanings is set forth under
"Description of Bond Ratings" in Part B.
(2) Ratings in the right hand column are after deposit of these issues in
the Trust and their insurance by MBIA. Moody's has assigned its "Aaa" investment
rating to all of the Bonds while in the Trust, as insured by MBIA Insurance
Corporation.
(3) All Bonds are represented by contracts to purchase.
(4) All contracts to purchase the Bonds were entered into from February 8,
1999, to February 16, 1999. All contracts are expected to be settled prior to or
on the First Settlement Date of the Trust which is expected to be February 22,
1999, except for portfolio number 1 which will settle by March 11, 1999.
(5) Unless otherwise indicated, there is shown under this heading the year
in which each issue of bonds initially is redeemable and the redemption price
for that year. Each such issue continues to be redeemable at declining prices
thereafter, but not below par. "S.F." indicates a sinking fund has been or will
be established with respect to an issue of Bonds. In addition, certain Bonds in
the Trust may be redeemed in whole or in part other than by operation of the
stated optional call or sinking fund provisions under certain unusual or
extraordinary circumstances specified in the instruments setting forth the terms
and provisions of such Bonds. A sinking fund is a reserve fund accumulated over
a period of time for retirement of debt. A sinking fund may be estimated based
upon various factors or may be mandatory. "Ant." indicates the existence of
anticipated redemptions at a price of 100%. Under certain circumstances, these
anticipated redemptions can be altered. A callable bond is one which is subject
to redemption or refunding prior to maturity at the option of the issuer. A
refunding is a method by which a bond issue is redeemed before maturity by the
proceeds of a new bond issue.
Redemption pursuant to call provisions generally will, and redemption
pursuant to sinking fund provisions may, occur at times when the redeemed Bonds
have an offering side valuation which represents a premium over par. To the
extent that the Bonds were deposited in the Trust at a price higher than the
price at which they are redeemed, this will represent a loss of capital when
compared with the original Public Offering Price of the Units. Conversely, to
the extent that the Bonds were acquired at a price lower than the redemption
price, this will represent an increase in capital when compared with the
original Public Offering Price of the Units. Monthly and semi-annual
distributions generally be reduced by the amount of the income which would
otherwise have been paid with respect to redeemed Bonds and there will be
distributed to Unit holders the principal amount and any premium received on
such redemption. The estimated current return in this event may be affected by
such redemptions. The Federal tax effect on Unit holders of such redemptions and
resultant distributions is described in the section entitled "Tax Status" in
Part B.
(6) See Note (1) to "Statement of Condition as of Date of Deposit"
regarding cost of Bonds. The offering prices are greater than the current bid
prices of the Bonds which is the basis on which Redemption Price per Unit is
determined for purposes of redemption of Units (see the first paragraphs under
"Public Offering--Offering Price" and "Rights of Unit Holders--Redemption--
Computation of Redemption Price Per Unit" in Part B). On the business day prior
to the Date of Deposit the aggregate bid side valuation of the Securities in the
Trust was lower than the aggregate offering side valuation by .792%. Yield of
Bonds was computed on the basis of offering prices on the Date of Deposit.
Bonds identified as escrowed to maturity under "Portfolio" for the Trust in
this Part A are priced to the maturity date not the call date.
(7) Annual interest income to the Trust is $371,825.00.
(8) Yield calculated based on a call date prior to stated maturity.
A-10
675530.2
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITING ACCOUNT
The names and addresses of the Underwriters and the number of Units of the
Trust each has agreed to purchase from the Underwriting Account are:
Units
Name Address Series 144
<S> <C> <C>
Glickenhaus & Co. ..................................... 6 East 43rd Street, New York, New York 10017 2,900
Lebenthal & Co., Inc. ................................. 120 Broadway, New York, New York 10271 2,900
Gruntal & Co. LLC...................................... 1 Liberty Plaza, New York, New York 10006 1,200
Advest Incorporated ................................... 90 State House Square, Hartford, Connecticut 06103 100
Cadaret, Grant & Co., Inc. ........................... 108 W. Jefferson Street, Syracuse, New York 13203 100
CIBC Oppenheimer Corp.................................. World Financial Center, New York, New York 10281 100
David Lerner Associates, Inc. ......................... 477 Jericho Turnpike, Syosset, New York 11791 100
FSG Financial Services Group Inc. ..................... 150 Broad Hollow Road, Melville, NY 11747 100
Everen Securities, Inc. ............................... 77 West Wacker Drive, Chicago, Illinois 60606 100
Kirlin Securities, Inc. ............................... 6901 Jericho Turnpike, Syosset, New York 11791 100
Nathan & Lewis Securities, Inc. ....................... 1140 Avenue of the Americas, New York, New York 10036 100
Salomon Smith Barney Inc. ............................ 388 Greenwich Street, New York, New York 10013 100
Samuel A. Ramirez & Co., Inc. ......................... 61 Broadway, New York, New York 10006 100
--------
8,000
========
</TABLE>
A-11
675530.2
<PAGE>
TAX EQUIVALENT YIELDS
The following tables indicate the approximate yield resident individuals in
various income brackets must earn on a security subject to Federal, New York
State and New York City income taxes to receive an after-tax yield equivalent to
that provided by a tax-exempt bond yielding from 4.0% to 8.0%, based on
anticipated 1999 Federal, New York State and New York City marginal tax rates.
New York City taxpayers should refer to Table I. New York State taxpayers
outside of New York City should refer to Table II.
<TABLE>
<CAPTION>
TABLE I. COMBINED EFFECT OF FEDERAL, NEW YORK STATE AND NEW YORK CITY INCOME TAXES
Approx.
1999 To equal a tax-exempt yield of:
---------------------------------------------------------------
Federal,
NYS 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
---------------------------------------------------------------
If your net taxable income1 & NYC
is approximately2 Marginal
Joint Return Single Return Tax Rates4 A taxable investment would have to pay you:3
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$21,601-$43,050 $12,001-$25,750 24.10% 5.3% 5.9% 6.6% 7.2% 7.9% 8.6% 9.2% 9.9% 10.5%
- -----------------------------------------------------------------------------------------------------------------
$43,051-$104,050 $25,751-$62,450 35.75% 6.2% 7.0% 7.8% 8.6% 9.3% 10.1% 10.9% 11.7% 12.5%
- -----------------------------------------------------------------------------------------------------------------
$104,051-$158,550 $62,451-$130,250 39.42% 6.6% 7.4% 8.3% 9.1% 9.9% 10.7% 11.6% 12.4% 13.2%
- -----------------------------------------------------------------------------------------------------------------
$158,551-$283,150 $130,251-$283,150 43.89% 7.1% 8.0% 8.9% 9.8% 10.7% 11.6% 12.5% 13.4% 14.3%
- -----------------------------------------------------------------------------------------------------------------
$283,151+ $283,151+ 47.30% 7.6% 8.5% 9.5% 10.4% 11.4% 12.3% 13.3% 14.2% 15.2%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE II. COMBINED EFFECT OF FEDERAL AND NEW YORK STATE INCOME TAXES
Approx.
1999 To equal a tax-exempt yield of:
-----------------------------------------------------------------
If your net taxable Federal &
income1 is NYS 4.0% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00%
-----------------------------------------------------------------
approximately2 Marginal
Joint Return Single Return Tax Rates5 A taxable investment would have to pay you:3
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$21,601-$43,050 $12,001-$25,750 20.82% 5.1% 5.7% 6.3% 7.0% 7.6% 8.2% 8.8% 9.5% 10.1%
- ------------------------------------------------------------------------------------------------------------------
$43,051-$104,050 $25,751-$62,450 32.93% 6.0% 6.7% 7.5% 8.2% 9.0% 9.7% 10.4% 11.2% 11.9%
- ------------------------------------------------------------------------------------------------------------------
$104,051-$158,550 $62,451-$130,250 36.59% 6.3% 7.1% 7.9% 8.7% 9.5% 10.3% 11.0% 11.8% 12.6%
- ------------------------------------------------------------------------------------------------------------------
$158,551-$283,150 $130,251-$283,150 41.39% 6.8% 7.7% 8.5% 9.4% 10.2% 11.1% 11.9% 12.8% 13.7%
- ------------------------------------------------------------------------------------------------------------------
$283,151+ $283,151+ 44.85% 7.3% 8.2% 9.1% 10.0% 10.9% 11.8% 12.7% 13.6% 14.5%
- ------------------------------------------------------------------------------------------------------------------
1 After exemptions and deductions other than state and local tax deductions.
2 The tables cover only a representative range of incomes, and income
brackets have been rounded off to facilitate illustration. Actual Federal, New
York State and New York City income brackets may differ slightly from those in
the table.
3 Yields on taxable investments have been rounded off to facilitate
illustration.
4 This rate is calculated by using the highest New York State and New York
City marginal tax rates that apply to the bracket.
5 This rate is calculated by using the highest New York State marginal tax
rate that applies to the bracket.
</TABLE>
A-12
675530.2
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST Prospectus Part B
Part B of this Prospectus may not be Distributed Unless Accompanied by Part A
THE TRUST
Organization. The Empire State Municipal Exempt Trust, Guaranteed Series as
designated in Part A (the "Trust"), is one of a series of similar but separate
unit investment trusts created under the laws of the State of New York by a
Trust Indenture and Agreement* (the "Trust Agreement"), dated the Date of
Deposit, among Glickenhaus & Co. and Lebenthal & Co., Inc. as sponsors (the
"Sponsors"), The Bank of New York, as trustee (the "Trustee") and Muller Data
Corporation, as evaluator (the "Evaluator").
On the date of this Prospectus each Unit represented the fractional undivided
interest in the Trust set forth under "Summary of Essential Financial
Information" in Part A. Thereafter, if any Units of the Trust are redeemed by
the Trustee, the fractional undivided interest in the Trust represented by each
unredeemed Unit will increase, although the actual interest in the Trust
represented by each such Unit will remain essentially the same. Units will
remain outstanding until redeemed upon tender to the Trustee by any Unit holder,
which may include the Sponsors, or until the termination of the Trust Agreement
for the related Trust. See "Rights of Unit Holders--Redemption" in this Part B.
Objectives. The objective of the Trust is to obtain tax-exempt interest income
through an investment in a fixed insured portfolio consisting primarily of
various long-term municipal bonds with average maturities of over 10 years. No
assurance can be given that the Trust's objectives will be achieved as these
objectives are subject to the continuing ability of the respective issuers of
the bonds to meet their obligations and, of the Insurer to meet its obligations
under the insurance. In addition, an investment in such portfolio can be
affected by fluctuations in interest rates.
Portfolio. The portfolio of the Trust consists of the Bonds described in "The
Portfolio" in Part A and are represented by the Sponsors' contracts to purchase,
which are expected to be settled by the date set forth in Part A. The Trust may
contain Bonds which have been purchased on a when, as, and if issued basis.
Accordingly, the delivery of such Bonds may be delayed or may not occur. (See
"The Portfolio" in Part A.) Interest on these Bonds begins accruing to the
benefit of Unit holders on their respective dates of delivery. Unit holders will
be "at risk" with respect to these Bonds (i.e., may derive either gain or loss
from fluctuations in the offering side evaluation of the Bonds) from the date
they commit for Units. (See "The Portfolio" in Part A.) For a discussion of the
Sponsors' obligations in the event of the failure of any contract for the
purchase of any of the Bonds and limited right to substitute other bonds to
replace any failed contract, see "The Trust--Substitution of Bonds" in this Part
B. As a result of the MBIA Insurance Corporation insurance, Moody's Investors
Service ("Moody's") has assigned a rating of "Aaa" to all of the Bonds in the
Trust, as insured and Standard & Poor's Corporation, a division of McGraw-Hill
("Standard & Poor's") has assigned a rating of "AAA" to the Units and Bonds
while in the Trust. (See "Insurance on the Bonds" in this Part B).
In view of the Trust's objectives, the following factors, among others,
were considered in selecting the Bonds: (1) all the Bonds are obligations of the
State of New York and counties, municipalities, authorities or political
subdivisions thereof or issued by certain United States territories or
possessions, including Puerto Rico, and their public authorities so that the
interest on them will be exempt from Federal, New York State and New York City
income tax under existing law; (2) the Bonds are varied as to purpose of issue;
(3) in the opinion of the Sponsors, the Bonds are fairly valued relative to
other bonds of comparable quality and maturity; and (4) MBIA Insurance
Corporation insurance for the payment of principal and interest on the Bonds is
available. Subsequent to the Date of Deposit, a Bond may cease to be rated or
its rating may be reduced. Neither event requires an elimination of such Bond
from the portfolio, but such an event may be considered in the Sponsors'
determination to direct the Trustee to dispose of the Bonds. See "Sponsors-
Responsibility" in Part B. The insurance on the Bonds in the portfolio obtained
by the Trust does not cover such Bonds until they are delivered to the Trust.
See "The Trust--General Considerations" in this Part B.
- ----------------
* References in this Prospectus to the Trust Agreement are qualified in their
entirety by the Trust Agreement which is incorporated herein by reference.
369165.2
<PAGE>
General Considerations. Because certain of the Bonds may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that the Trust
will retain for any length of time its present size and composition. Except as
described in footnotes to "Summary of Essential Financial Information" for the
Trust interest accrues to the benefit of Unit holders commencing with the
expected date of settlement for purchase of the Units. If a Replacement Bond is
not acquired, accrued interest (at the coupon rate of the Failed Bonds or earned
original issue discount in the case of original issue discount and zero coupon
Bonds) will be paid to Unit holders (from the Deposit Date to the date the
Trustee is notified of the failure of the Sponsors to purchase a Replacement
Bond). All such interest paid to Unit holders which accrued after the date of
settlement for a purchase of Units will be paid by the Sponsors and accordingly
will not be treated as tax-exempt income. In the event a Replacement Bond is not
acquired by the Trust, the net annual interest income per Unit for the Trust
would be reduced and the estimated current return might be lowered.
Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any Security. In the event that any contract for
the purchase of Securities in the Trust fails and no Replacement Bond as
hereinafter defined is acquired, the Sponsors shall refund to all Unit holders
the sales charge attributable to such failed contract, and the principal and
accrued interest (at the coupon rate of the relevant Security or earned original
issue discount in the case of original issue discount and zero coupon Bonds to
the date the Sponsors are notified of the failure) which are attributable to
such failed contract, shall be distributed at the next Monthly Payment Date
which is more than 30 days after the failure to purchase Replacement Bonds. The
portion of such interest paid to a Unit holder which accrued after the expected
date of settlement for purchase of his Units will be paid by the Sponsors and
accordingly will not be treated as tax-exempt income.
The following paragraphs discuss the characteristics of the Bonds in the
Trust and of certain types of issuers of the Bonds in the Trust. These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payment of principal of and
interest on Bonds held in the portfolio of the Trust or which may adversely
affect the ratings of such Bonds. Because of the insurance obtained by the
Sponsors or by the issuers for the Trust, however, such changes should not
adversely affect the Trust's ultimate receipt of principal and interest, the
Standard & Poor's or Moody's ratings of the Bonds in the portfolio, or the
Standard & Poor's rating of the Units of the Trust. An investment in Units of
the Trust should be made with an understanding of the risks that such an
investment may entail, certain of which are described below. Unit holders may
obtain additional information concerning a particular Bond by requesting an
official statement from the issuer of such Bond.
General Obligation Bonds. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. The taxing power of any governmental entity may be limited, however,
by provisions of state constitutions or laws, and an entity's credit will depend
on many factors, including potential erosion of the tax base due to population
declines, natural disasters, declines in the issuer's industrial or economic
base or inability to attract new industries; economic limits on the ability to
tax without eroding the tax base; legislative proposals or voter initiatives to
limit ad valorem real property taxes; and the extent to which the entity relies
on Federal or state aid, access to capital markets or other factors beyond the
entity's control.
Appropriations Bonds. Many state or local governmental entities enter into lease
purchase obligations as a means for financing the acquisition of capital
projects (e.g., buildings or equipment, among other things). Such obligations
are often made subject to annual appropriations. Certain Bonds in the Trust may
be Bonds that are, in whole or in part, subject to and dependent upon (i) the
governmental entity making appropriations from time to time or (ii) the
continued existence of special temporary taxes which require legislative action
for their reimposition. The availability of any appropriation is subject to the
willingness or ability of the governmental entity to continue to make such
special appropriations or to reimpose such special taxes. The obligation to make
lease payments exists only to the extent of the monies available to the
governmental entity therefor, and no liability is incurred by the governmental
entity beyond the monies so appropriated. Subject to the foregoing, once an
annual appropriation is made, the governmental entity's obligation to make lease
rental payments is absolute and unconditional without setoff or counterclaim,
regardless of contingencies, whether or not a given project is completed or used
by the governmental entity and notwithstanding any circumstances or occurrences
which might arise. In the event of non-appropriation, certificateholders' or
bondowners' sole remedy (absent credit enhancement) generally is limited to
repossession of the collateral for resale or releasing, 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.
B-2
369165.2
<PAGE>
Moral Obligation Bonds. Certain of the Bonds in the Trust may be secured by
pledged revenues and additionally by the so-called "moral obligations" of the
State or a local governmental body. Should the pledged revenues prove
insufficient, the payment of such Bonds is not a legal obligation of the State
or governmental entity, and is subject to its willingness to appropriate funds
therefor.
Revenue Bonds. Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds." Under the Internal Revenue Code of 1986, as amended (the "Code"), (and
under similar provisions of the prior tax law) "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting, certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. If any portion of the
Bonds proceeds are not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of zero coupon bonds (see "The Trust--Original Issue Discount and Zero Coupon
Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds of the Trust
may consist of obligations of state and local housing authorities whose revenues
are primarily derived from mortgage loans to owners of housing projects for low
to moderate income families. Since such obligations are not general obligations
of a particular state or municipality or other governmental authority and are
generally payable primarily or solely from rents and other fees, adverse
economic developments including failure or inability to increase rentals,
fluctuations of interest rates and increasing construction and operating costs
may reduce revenues available to pay existing obligations.
The housing bonds in the Trust, despite their optional redemption
provisions which generally do not take effect until ten years after the original
issuance dates of such Bonds (often referred to as "ten year call protection"),
do contain provisions which require the issuer to redeem such obligations at par
from unused proceeds of the issue within a stated period. In recent periods of
declining interest rates there have been increased redemptions of housing bonds
pursuant to such redemption provisions. In addition, the housing bonds in the
Trust are also subject to mandatory redemption in part, at par, at any time that
voluntary or involuntary prepayments of principal on the underlying mortgages
are made to the trustee for such Bonds or that the mortgages are sold by the
bond issuer. Prepayments of principal tend to be greater in periods of declining
interest rates; it is possible that such prepayments could be sufficient to
cause a housing bond to be redeemed substantially prior to its stated maturity
date, earliest call date or sinking fund redemption date.
Public Power Revenue Bonds. Certain Bonds may be bonds issued to finance
public power facilities. Certain risks associated with the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and operation
of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials and
the disposal of radioactive waste; and the effects of energy conservation.
Certain Bonds may have been issued in connection with the financing of nuclear
generating facilities. In view of recent developments in connection with such
facilities, legislative and administrative actions have been taken and proposed
relating to the development and operation of nuclear generating facilities. The
Sponsors are unable to predict whether any such actions or whether any such
proposals or litigation, if enacted or instituted, will have an adverse impact
on the revenues available to pay the debt service on the Bonds in the portfolio
issued to finance such nuclear projects.
Each of the problems referred to above could adversely affect the ability
of the issuers of public power revenue bonds to make payments of principal of
and/or interest on Bonds issued by public utilities. In addition, certain
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.
B-3
369165.2
<PAGE>
Health Care Revenue Bonds. Some of the aggregate principal amount of Bonds
of the Trust may consist of hospital revenue bonds. Ratings of hospital bonds
are often initially based on feasibility studies which contain projections of
occupancy levels, revenues and expenses. Actual experience may vary considerably
from such projections. A hospital's gross receipts and net income will be
affected by future events and conditions including, among other things, demand
for hospital services and the ability of the hospital to provide them,
physicians' confidence in hospital management capability, economic developments
in the service area, competition, actions by insurers and governmental agencies
and the increased cost and possible unavailability of malpractice insurance.
Additionally, a major portion of hospital revenue typically is derived from
federal or state programs such as Medicare and Medicaid which have been revised
substantially in recent years and which are undergoing further review at the
state and federal level.
Proposals for significant changes in the health care system and the present
programs for third party payment of health care costs are under consideration in
Congress and many states. Future legislation or changes in the areas noted
above, among other things, would affect all hospitals to varying degrees and,
accordingly, any adverse change in these areas may affect the ability of such
issuers to make payment of principal and interest on such bonds.
Higher Education Revenue Bonds. Higher education revenue bonds include debt
of state and private colleges, universities and systems, and parental and
student loan obligations. The ability of universities and colleges to meet their
obligations is dependent upon various factors, including the revenues, costs and
enrollment levels of the institutions. In addition, their ability may be
affected by declines in Federal, state and alumni financial support,
fluctuations in interest rates and construction costs, increased maintenance and
energy costs, failure or inability to raise tuition or room charges and adverse
results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the pollution control
facilities category include securities issued on behalf of a private
corporation,* including utilities, to provide facilities for the treatment of
air, water and solid waste pollution. Repayment of these bonds is dependent upon
income from the specific pollution control facility and/or the financial
condition of the project corporation.
Other Utility Revenue Bonds. Bonds in this category include securities
issued to finance natural gas supply, distribution and transmission facilities,
public water supply, treatment and distribution facilities, and sewage
collection, treatment and disposal facilities. Repayment of these bonds is
dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this category
include securities issued to finance facilities for removal and disposal of
solid municipal waste. Repayment of these bonds is dependent on factors which
may include revenues from appropriations from a governmental entity, the
financial condition of the private project corporation and revenues derived from
the collection of charges for disposal of solid waste. Repayment of resource
recovery bonds may also be dependent to various degrees on revenues from the
sale of electric energy or steam. Bonds in this category may be subject to
mandatory redemption in the event of project non-completion, if the project is
rendered uneconomical or if it is considered an environmental hazard.
Transportation Revenue Bonds. Bonds in this category include bonds issued
for airport facilities, bridges, turnpikes, port authorities, railroad systems,
or mass transit systems. Generally, airport facility revenue bonds are payable
from and secured by the revenues derived from the ownership and operation of a
particular airport. Payment on other transportation bonds is often dependent
primarily or solely on revenues from financed facilities, including user fees,
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
- -----------
* For purposes of the description of users of facilities, all references to
"corporations" shall be deemed to include any other nongovernmental person or
entity.
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<PAGE>
assistance including motor fuel and motor vehicle taxes, fees, and licenses and,
therefore, may be subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of the Trust may contain other Bonds
that are "private activity bonds," which would be primarily of two types: (1)
Bonds for a publicly owned facility that a private entity may have a right to
use or manage to some degree, such as an airport, seaport facility or water
system and (2) Bonds for facilities deemed owned or beneficially owned by a
private entity but which were financed with tax-exempt bonds of a public issuer,
such as a manufacturing facility or a pollution control facility. In the case of
the first type, bonds are generally payable from a designated source of revenues
derived from the facility and may further receive the benefit of the legal or
moral obligation of one or more political subdivisions or taxing jurisdictions.
In most cases of project financing of the first type, receipts or revenues of
the Issuer are derived from the project or the operator or from the unexpended
proceeds of the bonds. Such revenues include user fees, service charges, rental
and lease payments, and mortgage and other loan payments.
The second type of issue will generally finance projects which are owned by
or for the benefit of, and are operated by, corporate entities. Ordinarily, such
private activity bonds are not general obligations of governmental entities and
are not backed by the taxing power of such entities, and are solely dependent
upon the creditworthiness of the corporate user of the project or corporate
guarantor.
The private activity bonds in the Trust have generally been issued under
bond resolutions, agreements or trust indentures pursuant to which the revenues
and receipts payable under the issuer's arrangements with the users or the
corporate operator of a particular project have been assigned and pledged to the
holders of the private activity bonds. In certain cases a mortgage on the
underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds secured
primarily or solely by receipt of certain state or local taxes, including sales
and use taxes or excise taxes. Consequently, such bonds may be subject to
fluctuations in the collection of such taxes. Such bonds do not include tax
increment bonds or special assessment bonds.
Other Revenue Bonds. Certain of the Bonds in the Trust may be revenue bonds
which are payable from and secured primarily or solely by revenues from the
ownership and operation of particular facilities, such as correctional
facilities, parking facilities, convention centers, arenas, museums and other
facilities owned or used by a charitable entity. Payment on bonds related to
such facilities is, therefore, primarily or solely dependent on revenues from
such projects, including user fees, charges and rents. Such revenues may be
affected adversely by increased construction and maintenance costs or taxes,
decreased use, competition from alternative facilities, reduction or loss of
rents or the impact of environmental considerations.
Certain of the Bonds in the Trust are secured by direct obligations of the
U.S. Government, or in some cases, obligations guaranteed by the U.S.
Government, placed in an escrow account maintained by an independent trustee
until maturity or a predetermined redemption date. In a few isolated instances
to date, bonds which were thought to be escrowed to maturity have been called
for redemption prior to maturity.
Original Issue Discount Bonds and Zero Coupon Bonds. Certain of the Bonds in the
Trust may be original issue discount bonds and/or zero coupon bonds. Original
issue discount bonds are bonds that were originally issued at less than the
market interest rate. Zero coupon bonds are original issue discount bonds that
do not provide for the payment of current interest. For Federal income tax
purposes, original issue discount on such bonds must be amortized over the term
of such bonds. On sale or redemption, the difference between the (i) the amount
realized (other than amounts treated as tax-exempt income as described below)
and (ii) the tax basis of such bonds (properly adjusted, in the circumstances
described below, for amortization of original issue discount) will be treated as
taxable income or loss. See "Tax Status" in this Part B. The Code requires
holders of tax-exempt obligations issued with original issue discount, such as
the Trust, to accrue tax-exempt original issue discount by using the constant
interest method provided for the holders of taxable obligations. In addition,
the Code provides that the basis of a tax-exempt obligation is increased by the
amount of accrued tax-exempt original issue discount. These provisions are
applicable to obligations issued after September 3, 1982 and acquired after
March 1, 1984. Each Trust's tax basis in a Bond is increased by any accrued
original issue discount as
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is a Unit holder's tax basis in his Units. For Bonds issued after June 9, 1980
that are redeemed prior to maturity, the difference between the Trust's basis,
as adjusted, and the amount received will be taxable gain or loss to the Unit
holders. All or a portion of any gain may be taxable as ordinary income.
There can be no assurance that additional Federal legislation will not be
enacted or that existing legislation will not be amended hereafter with the
effect that interest on bonds becomes subject to Federal income taxation. If the
interest on the Bonds in the Trust should ultimately be deemed to be taxable,
the Trustee may sell them and, since they would be sold as taxable securities,
it is expected that they would have to be sold at a substantial discount from
current market prices.
Bonds Subject to Sinking Fund Provisions. Most of the Bonds in the Trust are
subject to redemption prior to their stated maturity date pursuant to sinking
fund or call provisions. A sinking fund is a reserve fund accumulated over a
period of time for retirement of debt. Sinking fund provisions are designed to
redeem a significant portion of an issue gradually over the life of the issue. A
sinking fund may be estimated based upon various factors or may be mandatory.
Obligations to be redeemed are generally chosen by lot. On the Date of Deposit,
the offering valuations of some of the Bonds in the Trust may have been at a
premium and subject to retirement or refunding within ten years of the Date of
Deposit. A callable debt obligation is one which is subject to redemption prior
to maturity at the option of the issuer. To the extent that obligations are
deposited in the Trust at a price higher than their par value, such redemption
at par would result in a loss of capital to a purchaser of Units at their
original public offering price. The estimated current return of the Units might
also be adversely affected if the return on the retired Bonds is greater than
the average return on the Bonds in the Trust. In general, call provisions are
more likely to be exercised when the offering side valuation is at a premium
over par than when it is at a discount from par. See "The Portfolio" in Part A
for a list of original issue discount and/or zero coupon bonds and for a
breakdown of the percentage of Bonds in the Trust with offering side valuations
at a premium, discount or at par. See also "Estimated Current Return and
Estimated Long Term Return" in Part B. The portfolio contains a listing of the
sinking fund and call provisions, if any, with respect to each of the Bonds
therein.
Substitution of Bonds. In the event of a failure to deliver any Bond that has
been purchased for the Trust under a contract, including those Bonds purchased
on a "when, as and if issued" basis ("Failed Bonds"), the Sponsors are
authorized to purchase other bonds ("Replacement Bonds") which the Trustee shall
pay for out of funds held in connection with the Failed Bonds and to accept
delivery of the Replacement Bonds to make up the original corpus of the Trust.
The Replacement Bonds must be purchased within 20 days after delivery of the
notice of the failed contract, and the purchase price (exclusive of accrued
interest) may not exceed the principal attributable to the Failed Bonds. The
Replacement Bonds (i) must be tax-exempt bonds issued by the State of New York
or counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions or their public
authorities as described in the first paragraph under "Portfolio," (ii) must
have a fixed maturity date not exceeding the maturity date of the Failed Bonds
and not less than ten years after the date of purchase, (iii) shall be purchased
at a price that results in a yield to maturity and a current return, in each
case as of the Date of Deposit, at least equal to the yield to maturity and the
current return of the Failed Bonds, (iv) shall not be "when issued" bonds, (v)
must be rated at least equal to the Failed Bonds and (vi) must be eligible for
coverage under the MBIA Insurance Corporation insurance policy obtained by the
Trust. Whenever a Replacement Bond has been acquired for the Trust, the Trustee
shall, within five days thereafter, notify all Unit holders of the Trust of the
acquisition of the Replacement Bond and shall, on the next monthly Payment Date
which is more than 30 days thereafter, make a pro rata distribution of the
amount, if any, by which the cost to the Trust of the Failed Bond exceeded the
cost of the Replacement Bond. Once the original corpus of the Trust is acquired,
the Trustee will have no power to vary the investment of the Trust, i.e., the
Trustee will have no managerial power to take advantage of market variations to
improve a Unit holder's investment.
If the right of limited substitution described in the preceding paragraph
shall not be utilized to acquire Replacement Bonds in the event of a failed
contract, the Sponsors will refund the sales charge attributable to such Failed
Bonds to all Unit holders of the Trust, and distribute the principal and accrued
interest (at the coupon rate of such Failed Bond, or earned original issue
discount in the case of zero coupon bonds, from the Deposit Date to the date the
Sponsors notify the Trustee that they will not purchase Replacement Bonds)
attributable to such Failed Bonds on the next monthly Payment Date which is more
than 30 days thereafter. In the event a Replacement Bond is not acquired by the
Trust, the Estimated Net Annual Interest Income per Unit for the Trust would be
reduced and the Estimated Current Return thereon might be lowered.
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Other Matters. An amendment to the Federal Bankruptcy Act relating to the
adjustment of indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or otherwise
alter the terms of its obligations, including those of the type comprising the
Trust's portfolio. The Sponsors are unable to predict at this time what effect,
if any, this legislation will have on the Trust.
To the best knowledge of the Sponsors, there is no litigation pending as of
the Date of Deposit in respect of any Securities which might reasonably be
expected to have a material adverse effect upon the Trust. At any time after the
Date of Deposit, however, litigation may be initiated on a variety of grounds
with respect to Securities in the Trust. Such litigation as, for example, suits
challenging the issuance of pollution control revenue bonds under recently
enacted environmental protection statutes, may affect the validity of such
Securities or the tax-free nature of the interest thereon. While the outcome of
such litigation can never be entirely predicted with certainty, bond counsel has
given or will give opinions to the issuing authorities of each Bond on the date
of issuance to the effect that such Securities have been validly issued and that
the interest thereon is exempt from regular Federal income tax. In addition,
other litigation or other factors may arise from time to time which potentially
may impair the ability of issuers to meet obligations undertaken with respect to
Securities.
PUBLIC OFFERING
Offering Price. The price of the Units of the Trust as of the Date of Deposit
was determined by adding to the Evaluator's determination of the aggregate
offering price of the Securities per Unit a sales charge of 5.152% thereof equal
to 4.9% of the aggregate offering price of the Securities per Unit and a pro
rata portion of estimated organization costs. During the initial public offering
period, sales of at least 250 Units will be entitled to a volume discount from
the Public Offering Price as described below. For purchases settling after the
First Settlement Date, a proportionate share of accrued and undistributed
interest on the Securities at the date of delivery of the Units to the purchaser
is also added to the Public Offering Price. However, after the initial offering
period the Public Offering Price of the Units will not include a pro rata
portion of estimated organizational costs.
During the initial offering period the aggregate offering price of the
Securities in the Trust is determined by the Evaluator (1) on the basis of
current offering prices for the Securities,* (2) if offering prices are not
available for any Securities, on the basis of current offering prices for
comparable securities, (3) by making an appraisal of the value of the Securities
on the basis of offering prices in the market, or (4) by any combination of the
above. Such determinations are made each business day during the initial public
offering period as of the Evaluation Time set forth in the "Summary of Essential
Financial Information" in Part A, effective for all sales made subsequent to the
last preceding determination. For information relating to the calculation of the
Redemption Price, which is based upon the aggregate bid price of the underlying
Securities and which may be expected to be less than the aggregate offering
price, see "Rights of Unit Holders--Redemption" in Part B. Unless Securities are
in default in payment of principal or interest or in significant risk of such
default, the Evaluator will not attribute any value to the Units due to the MBIA
Insurance Corporation insurance obtained by the Trust. See also "Rights of Unit
Holders--Certificates" and "Rights of Unit Holders--Redemption" in Part B for
information relating to redemption of Units.
The Evaluator will consider in its evaluation of Securities which are in
default in payment of principal or interest or, in the Sponsors' opinion, in
significant risk of such default ("Defaulted Bonds") and which are covered by
insurance obtained by the Trust the value of the insurance guaranteeing interest
and principal payments. The value of the 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
- --------
* With respect to the evaluation of Bonds during the initial syndicate offering
period for such Bonds, the "current offering price," as determined by the
Evaluator, will normally be equal to the syndicate offering price as of the
Evaluation Time, unless the Evaluator determines that a material event has
occurred which it believes may result in the syndicate offering price not
accurately reflecting the market value of such Bonds, in which case the
Evaluator, in making its determination with respect to such Bonds, will
consider not only the syndicate offering price but also the factors described
in (2) and (3) herein.
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<PAGE>
related custodial fee) and (ii) the market value of such Defaulted Bonds not
covered by Permanent Insurance. In any case the Evaluator will consider the
ability of MBIA Insurance Corporation to meet its commitments under the Trust's
insurance policy, including the commitment to issue Permanent Insurance. The
Evaluator intends to use a similar valuation method with respect to Securities
insured by the Trust if there is a significant risk of default and a resulting
decrease in the market value. For a description of the circumstances under which
a full or partial suspension of the right of Unit holders to redeem their Units
may occur, see "Rights of Unit Holders--Redemption" in Part B.
If the Trustee does not exercise the right to obtain Permanent Insurance as
to any Defaulted Bonds in the Trust, it is the present intention of the Trustee,
so long as the Trust contains either some Bonds not in default or any
Pre-insured Bonds, not to sell Defaulted Bonds to effect redemptions or for any
other reason but rather to retain them in the portfolio BECAUSE VALUE
ATTRIBUTABLE TO THE INSURANCE OBTAINED BY THE TRUST CANNOT BE REALIZED UPON
SALE. Insurance obtained by the issuer of a Pre-insured Bond, or by some party
other than the Trust, is effective so long as such Pre-insured Bond is
outstanding and the insurer of such Bond continues to fulfill its obligations.
Therefore, any such insurance may be considered to represent an element of
market value in regard to the Pre-insured Bond, but the exact effect, if any, of
this insurance on such market value cannot be predicted. Regardless of whether
the insurer of a Pre-insured Bond continues to fulfill its obligations, however,
such Bond will in any case continue to be insured under the policy obtained by
the Trust from MBIA Insurance Corporation as long as the Bond is held in the
Trust.
No value has been ascribed to the MBIA Insurance Corporation insurance
obtained by the Trust as of the date of this Prospectus.
The secondary market Public Offering Price of the Units of the Trust is
based on the aggregate bid price of the Bonds in the Trust (as determined by the
Evaluator) plus a sales charge determined in accordance with the schedule set
forth below, which is based upon the maturities of each Bond in the Trust. The
Sponsors have implemented this variable format as a more equitable method of
assessing the sales charge for secondary market purchases. For purposes of
computation, Bonds will be deemed to mature on their expressed maturity dates
unless the Evaluator evaluates the price of the Bonds to a different date such
as a call date or a mandatory tender date, in which case the maturity will be
deemed to be such other date.
This method of sales charge computation will apply different sales charge
rates to each Bond in the Trust based upon the maturity of each such Bond in
accordance with the following schedule:
<TABLE>
<CAPTION>
Secondary Market
Period Sales Change
-------------------------------------------------
Percentage of Percentage of
Public Offering Net Amount
Per Bond Price Invested
-------------------- -----------------
Years to Maturity Per Bond
- --------------------------
<S> <C> <C>
0 months to 2 years................................................... 1.0% 1.010%
2 but less than 3..................................................... 2.0% 2.091%
3 but less than 4..................................................... 3.0% 3.093%
4 but less than 8..................................................... 4.0% 4.167%
8 but less than 12.................................................... 5.0% 5.363%
12 but less than 15................................................... 5.5% 5.820%
15 or more............................................................ 5.9% 6.270%
</TABLE>
A minimum sales charge of 1.0% of the Public Offering Price will be applied
to all secondary market unit purchases.
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During the initial public offering period, purchasers of 250 Units or more
will be entitled to a volume discount from the Public Offering Price as set
forth in the table below:
Discount From
Public Offering
Number of Units Price Per Unit
--------------- -----------------
250-499............................ $ 2.50
500-999............................ 7.50
1,000-1,999........................ 15.00
2,000 or more...................... 20.00
Except as discussed under "Distribution of Units" below, the above volume
discount will be the responsibility of the Selling Underwriter or dealer and
will apply on all purchases at any one time by the same person of Units in the
Trust in the amounts stated. Units held in the name of the spouse of the
purchaser or in the name of a child of the purchaser under 21 years of age are
deemed for the purposes hereof to be registered in the name of the purchaser.
The graduated sales charges are also applicable to a trustee or other fiduciary
purchasing Units for a single trust estate or single fiduciary account.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge discussed above is
retained by or remitted to the banks. Under the Glass-Steagall Act, banks are
prohibited from underwriting Trust Units; however, the Glass-Steagall Act does
permit certain agency transactions, and banking regulators have not indicated
that these particular agency transactions are not permitted under such Act.
Market for Units. Although they are not obligated to do so, the Sponsors
intend to maintain a market for the Units of the Trust and continuously to offer
to purchase Units of the Trust during the initial offering period at prices
based upon the aggregate offering price of the Securities in the Trust; and
thereafter at prices based on the aggregate bid price of the related Securities.
After the initial offering period the Sponsors' Repurchase Price shall be not
less than the Redemption Price plus accrued interest through the expected date
of settlement. (See "Rights of Unit Holders--Redemption-- Computation of
Redemption Price per Unit" in Part B). There is no sales charge incurred when a
Unit holder sells Units back to the Sponsors. Any Units repurchased by the
Sponsors may be reoffered to the public by the Sponsors at the Public Offering
Price at such time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for some other
business reason, the Sponsors may discontinue purchases of Units of such Series
at prices based on the aggregate bid price of the Securities. The Sponsors do
not in any way guarantee the enforceability, marketability, or price of any
Security in the portfolio or of the Units of the Trust. In the event that a
market is not maintained for the Units of the Trust, a Unit holder desiring to
dispose of his Units may be able to do so only by tendering such Units to the
Trustee for redemption at the Redemption Price, which is based upon the
aggregate bid price of the underlying Securities. The aggregate bid price of the
Securities in the Trust may be expected to be less than the aggregate offering
price. If a Unit holder wishes to dispose of his Units, he should inquire of the
Sponsors as to current market prices prior to making a tender for redemption to
the Trustee. See "Rights of Unit Holders--Redemption" and "Sponsors" in Part B.
Employees (and their immediate families) of Glickenhaus & Co. and Lebenthal
& Co., Inc. may, pursuant to employee benefit arrangements, purchase Units of
the Trust at a price equal to the offering side evaluation of the underlying
Securities in the Trust during the initial offering period and at the bid side
thereafter, divided by the number of Units outstanding plus a reduced sales
charge of 1.5% of the Public Offering Price. Such arrangements result in less
selling effort and selling expenses than sales to employee groups of other
companies. Resales or transfers of Units purchased under the employee benefit
arrangements may only be made through the Sponsors' secondary market, so long as
it is being maintained.
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Distribution of Units. The Underwriters of the Units of the Trust are listed in
the Underwriting Account (see "Underwriting Account" in Part A). It is the
Underwriters' intention to qualify Units of the Trust for sale in certain of the
states and to effect a public distribution of the Units solely through their own
organizations. However, Units may be sold to dealers who are members of the
National Association of Securities Dealers, Inc. at prices which represent a
concession equal to $32.00 per Unit from the related Public Offering Price
applicable to sales of fewer than 500 Units subject in each case to change from
time to time by the Agent for the Sponsors. Any volume discount (see "Offering
Price" in Part B) offered to investors will be borne by the selling Underwriter
or dealer except that, during the initial public offering period, the Sponsors
may pay the selling Underwriter or dealer $2.50 per Unit for individual sales of
more than 500 Units.
Sales will be made only with respect to whole Units, and the Sponsors
reserve the right to reject, in whole or in part, any order for the purchase of
Units.
Underwriters and broker-dealers of the Trust, banks and/or others are
eligible to participate in a program in which such firms receive from the
Sponsors a nominal award for each of their registered representatives who have
sold a minimum number of units of unit investment trusts created by the Sponsors
during a specified time period. In addition, at various times the Sponsors may
implement other programs under which the sales forces of Underwriters, brokers,
dealers, banks and/or others may be eligible to win other nominal awards for
certain sales efforts, or under which the Sponsors will reallow to any such
Underwriters, brokers, dealers, banks and/or others that sponsor sales contests
or recognition programs conforming to criteria established by the Sponsors, or
participate in sales programs sponsored by the Sponsors, an amount not exceeding
the total applicable sales charges on the sales generated by such person at the
public offering price during such programs. Also, the Sponsors in their
discretion may from time to time, pursuant to objective criteria established by
the Sponsors, pay fees to qualifying Underwriters, brokers, dealers, banks
and/or others for certain services or activities which are primarily intended to
result in sales of Units of the Trust. Such payments are made by the Sponsors
out of their own assets and not out of the assets of the Trust. These programs
will not change the price Unit holders pay for their Units or the amount that
the Trust will receive from the Units sold.
Sponsors' and Underwriters' Profits. As set forth under "Public
Offering--Offering Price" in Part B, the Underwriters will receive gross
commissions equal to the specified percentages of the Public Offering Price of
the Units of the Trust. The Sponsors will receive from the Underwriters the
excess of such gross sales commission over $35 per Unit from Underwriters
underwriting 100 to 249 Units, will receive the excess over $36 per Unit from
Underwriters underwriting 250 to 499 Units, will receive the excess over $37 per
Unit from Underwriters underwriting 500 to 749 Units, will receive the excess
over $38 per Unit from Underwriters underwriting 750 to 999 Units, will receive
the excess over $39 per Unit from Underwriters underwriting 1,000 or more Units
and will receive the excess over $40 per Unit from Underwriters who underwrite
15% or more of the Units of the Trust. In addition, the Sponsors may, during the
initial public offering period, pay any Underwriter an additional $2.50 per Unit
for sales to individual purchasers of 500 or more Units. The Sponsors may also
from time to time pay, in addition to the amounts referenced above, an
additional concession, in the form of cash or other compensation, any
Underwriter who underwrites or sells, during a specific period, minimum dollar
amounts of the Units of the Trust. In no event will such additional concession
paid by the Sponsors to the Underwriter exceed the difference between the sales
charge and the Underwriter's allowance in respect of Units underwritten by the
Underwriter. Such Units then may be distributed to the public by the dealers at
the Public Offering Price then in effect.
In addition, the Sponsors realize a profit or sustain a loss, as the case
may be, in the amount of any difference between the cost of the Securities to
the Trust (which is based on the aggregate offering price of the Securities on
the Date of Deposit) and the purchase price of such Securities to the Sponsors
(which is the cost of such Securities at the time they were acquired for the
account of the Trust). The Underwriters share in the profits, if any, described
in the preceding sentence. See "Summary of Essential Financial Information" in
Part A. In addition, the Sponsors may realize profits or sustain losses with
respect to Bonds deposited in the Trust which were acquired from one or more of
the Sponsors or from underwriting syndicates of which they were members. During
the initial offering period, the Underwriters also may realize profits or
sustain losses as a result of fluctuations after the Date of Deposit in the
offering prices of the Securities and hence in the Public Offering Price
received by the Underwriters for Units. Cash, if any, made available to the
Sponsors prior to the settlement date for the purchase of Units of the Trust may
be used in the Sponsors' businesses, subject to the limitations of the
Securities Exchange Act of 1934 and may be of benefit to the Sponsors.
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The Sponsors may have participated as underwriters or as managers or
members of underwriting syndicates from which some of the aggregate principal
amount of the Bonds were acquired for the Trust in the amounts set forth in Part
A. The Sponsors have not purchased any of the Securities in the Trust from their
managed accounts.
In maintaining a market for the Units of the Trust (see "Market for Units")
the Sponsors and Underwriters will also realize profits or sustain losses in the
amount of any difference between the price at which they buy Units and the price
at which they resell or redeem such Units and to the extent they earn sales
charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In contrast,
tax-exempt bonds customarily are offered on a "yield price" basis. Therefore,
the rate of return on each Unit is measured in terms of both Estimated Current
Return and Estimated Long-Term Return. Estimated Current Return based on the
Public Offering Price per Unit and Estimated Long-Term Return per Unit, each as
of the business day prior to the Date of Deposit, is set forth under "Summary of
Essential Financial Information " in Part A. Information regarding the estimated
monthly distributions of principal and interest to Unit holders of the Trust is
available from the Sponsors on request.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price. Estimated Net Annual
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit will vary with
changes in the offering price of the Bonds. Estimated Current Return takes into
account only the interest payable on the Bonds and does not involve a
computation of yield to maturity or to an earlier redemption date nor does it
reflect any amortization of premium or discount from par value on the Bond's
purchase price. Moreover, because interest rates on Bonds purchased at a premium
are generally higher than current interest rates on newly issued bonds of a
similar type with comparable ratings, the Estimated Current Return per Unit may
be affected adversely if such Bonds are redeemed prior to their maturity.
Therefore, there is no assurance that the Estimated Current Return as set forth
under "Summary of Essential Financial Information" in Part A will be realized in
the future.
Estimated Long-Term Return is calculated using a formula that (i) takes
into consideration, and determines and factors in the relative weightings of,
the market values, yields (taking into account the amortization of premiums and
the accretion of discounts) and estimated retirements of all the Bonds in the
Trust and (ii) takes into account the expenses and sales charge associated with
each Unit of the Trust. The Estimated Long-Term Return assumes that each Bond is
retired on its pricing life date (i.e., that date which produces the lowest
dollar price when yield price calculations are done for each optional call date
and the maturity date of a callable security). If the Bond is retired on any
optional call or maturity date other than the pricing life date, the yield to
the holder of that Bond will be greater than the initial quoted yield. Since the
market values and estimated retirements of the Bonds, the expenses of the Trust
and the Net Annual Interest Income and Public Offering Price per Unit may
change, there is no assurance that the Estimated Long-Term Return as set forth
under "Summary of Essential Financial Information" in Part A will be realized in
the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Bonds in the Trust has been obtained from the Insurer by the
Trust. The Insurer has issued a policy of insurance covering each of the Bonds
in the Trust, including Pre-insured Bonds. The insurance obtained by the Trust
from the MBIA Insurance Corporation is only effective as to Bonds owned by and
held in the Trust and, consequently, does not cover Bonds for which the contract
for purchase fails. A "when issued" Bond will be covered under the MBIA
Insurance Corporation policy upon the settlement date of the issue of such "when
issued" Bond. The MBIA Insurance Corporation policy shall continue in force only
with respect to Bonds held in and owned by the Trust, and the Insurer shall not
have any liability under the policy with respect to any Bonds which do not
constitute part of the Trust. In determining to insure the Bonds, the Insurer
has applied its own standards which generally correspond to the standards it has
established for determining the insurability of new issues of municipal bonds.
See "Notes to Portfolio" in Part A of this Prospectus.
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By the terms of its policy, the Insurer will unconditionally guarantee to
the Trust the payment, when due, required of the issuer of the Bonds of an
amount equal to the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the Bonds as such payments shall become due but not paid. No
representation is made as to the ability of the insurer to meet its commitments.
Except as provided below with respect to issues of small issue industrial
development Bonds and pollution control revenue Bonds, in the event of any
acceleration of the due date of principal by reason of mandatory or optional
redemption (other than mandatory sinking fund redemption), default or otherwise,
the payments guaranteed will be made in such amounts and at such times as would
have been due had there not been an acceleration. The Insurer will be
responsible for such payments less any amounts received by the Trust from any
trustee for the Bond issuers or from any other source. Except as provided below,
the MBIA Insurance Corporation policy does not guarantee payment on an
accelerated basis, the payment of any redemption premium or the value of the
Units of the Trust. The MBIA Insurance Corporation policy also does not insure
against nonpayment of principal of or interest on the Bonds resulting from the
insolvency, negligence or any other act or omission of the Trustee or other
paying agent for the Bonds. However, with respect to small issue industrial
development Bonds and pollution control revenue Bonds covered by the policy, the
Insurer guarantees any accelerated payments required to be made by or on behalf
of an issuer of such Bonds if there occurs pursuant to the terms of the Bonds an
event which results in the loss of the tax-exempt status of interest on such
Bonds, including principal, interest or premium payments payable thereon, if
any, as and when required to be made by or on behalf of the issuer pursuant to
the terms of such Bonds. No assurance can be given that the MBIA Insurance
Corporation policy would insure the payment of principal or interest on Bonds
which is not required to be paid by the issuer thereof because the Bonds were
not validly issued. At the respective times of issuance of the Bonds, opinions
relating to the validity thereof were rendered by bond counsel to the respective
issuing authorities.
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. If an
issue is accepted for MBIA Insurance Corporation insurance, a non-cancelable
policy for the payment of interest on and principal of the bonds is issued by
the Insurer. A single or annual premium is paid by the issuer or any other party
for its insurance on Pre-insured Bonds, and a monthly premium is paid by the
Trust for the insurance it obtains from the Insurer on the Bonds in the Trust
that are not also MBIA Insurance Corporation Pre- insured Bonds or Municipal
Bond Insurance Association Pre-insured Bonds. No premium will be paid by the
Trust for the insurance it obtains from the Insurer on Bonds that are also MBIA
Insurance Corporation Pre-insured Bonds or Municipal Bond Insurance Association
Pre-insured Bonds.
The MBIA Insurance Corporation insurance policy is non-cancelable and will
continue in force so long as the Trust is in existence and the Securities
described in the policy continue to be held in and owned by the Trust. Failure
to pay premiums on the MBIA Insurance Corporation policy obtained by the Trust
will not result in the cancellation of insurance but will force the Insurer to
take action against the Trustee to recover premium payments due it. The Trustee
in turn will be entitled to recover such payments from the Trust.
The MBIA Insurance Corporation policy shall terminate as to any Bond which
has been redeemed from the Trust or sold by the Trustee on the date of such
redemption or on the settlement date of such sale, and the Insurer shall not
have any liability under the policy as to any such Bond thereafter. If the date
of such redemption or the settlement date of such sale occurs between a record
date and a date of payment of any such Bonds, the MBIA Insurance Corporation
policy will terminate as to such Bond on the business day next succeeding such
date of payment. The termination of the MBIA Insurance Corporation policy as to
any Bond shall not affect the Insurer's obligations regarding any other Bond in
the Trust or any other trust which has obtained a MBIA Insurance Corporation
insurance policy. The MBIA Insurance Corporation policy will terminate as to all
Bonds on the date on which the last of the Bonds matures, is redeemed or is sold
by the Trust.
Pursuant to an irrevocable commitment of the Insurer, the Trustee upon the
sale of a Bond in the Trust has the right to obtain permanent insurance with
respect to such Bond (i.e., insurance to maturity of the Bond) (the "Permanent
Insurance") upon the payment of a single predetermined insurance premium from
the proceeds of the sale of such Bond. Accordingly, any Bond in the Trust is
eligible to be sold on an insured basis. It is expected that the Trustee will
exercise the right to obtain Permanent Insurance for a Bond in the Trust upon
instruction from the Sponsors only if upon such exercise the Trust would receive
net proceeds (sale of Bond proceeds less the insurance premium attributable to
the Permanent Insurance and the related custodial fee) from such sale in excess
of the sale proceeds if such Bond were sold on an uninsured basis.
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The Permanent Insurance premium with respect to each Bond in the Trust is
determined based upon the insurability of each Bond as of the Date of Deposit
and will not be increased or decreased for any change in the creditworthiness of
such Bond unless such Bond is in default as to payment of principal and/or
interest. In such event, the Permanent Insurance premium shall be subject to an
increase predetermined at the Date of Deposit and payable from the proceeds of
the sale of such Bond. See the footnotes to the "Summary of Essential Financial
Information" in Part A for the Trust for the cost of Permanent Insurance as of
the Date of Deposit.
Except as indicated below, insurance obtained by the Trust has no effect on
the price or redemption value of Units thereof. lt is the present intention of
the Evaluator to attribute a value to the insurance obtained by the Trust
(including the right to obtain Permanent Insurance) for the purpose of computing
the price or redemption value of Units thereof only if the Bonds covered by such
insurance are in default in payment of principal or interest or, in the
Sponsors' opinion, in significant risk of such default. The value of the
insurance will be equal to the difference between (i) the market value of a Bond
which is in default in payment of principal or interest or in significant risk
of such default assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of Permanent Insurance
and the related custodial fee) and (ii) the market value of such Bonds not
covered by Permanent Insurance. See "Public Offering--Offering Price" in this
Part B for a more complete description of the Evaluator's method of valuing
defaulted Bonds and Bonds which have a significant risk of default. Insurance
obtained by the issuer of a Bond or by parties other than the Trust is effective
so long as such Pre-insured Bond is outstanding and the insurer of such Pre-
insured Bond continues to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond continues to
fulfill its obligations, however, such Bond will continue to be insured under
the policy obtained by the Trust from the Insurer as long as the Bond is held in
the Trust. Insurance obtained by the issuer of a Bond or by other parties may be
considered to represent an element of market value in regard to the Bonds thus
insured, but the exact effect, if any, of this insurance on such market value
cannot be predicted.
In the event that interest on or principal of a Bond is due for payment but
is unpaid by reason of nonpayment by the issuer thereof, the Insurer will make
payments to its fiscal agent, State Street Bank and Trust Company, N.A., New
York, New York (the "Fiscal Agent"), equal to such unpaid amounts of principal
and interest not later than one business day after the Insurer has been notified
by the Trustee that such nonpayment has occurred (but not earlier than the date
such payment is due). The Fiscal Agent will disburse to the Trustee the amount
of principal and interest which is then due for payment but is unpaid upon
receipt by the Fiscal Agent of (i) evidence of the Trust's right to receive
payment of such principal and interest and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of such
principal or interest then due for payment shall thereupon vest in the Insurer.
Upon payment by the Insurer of any principal or interest payments with respect
to any Bonds, the Insurer shall succeed to the rights of the owner of such Bonds
with respect to such payment.
No representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such information
subsequent to the date thereof. The Sponsors are not aware that the information
herein is inaccurate or incomplete as of the date hereof.
Battle Fowler LLP, special counsel for the Sponsors, have rendered an
opinion to the effect that the payment of proceeds from the insurance will be
excludible from Federal gross income if, and to the same extent as, such
interest would have been so excludible if paid by the issuer of the defaulted
obligations. See "Tax Status" in this Part B.
The contract of insurance relating to the Trust, certain agreements
relating to the Permanent Insurance and the negotiations in respect thereof
represent the only significant relationship between the Insurer and the Trust.
Otherwise, neither the Insurer nor any associate thereof has any material
business relationship, direct or indirect, with the Trust or the Sponsors,
except that the Sponsors may from time to time in the normal course of their
business, participate as underwriters or as managers or as members of
underwriting syndicates in the distribution of new issues of municipal bonds for
which a policy of insurance guaranteeing the payment of interest and principal
has been obtained from the Insurer, and except that James A. Lebenthal, Chairman
of the Board of Directors of Lebenthal & Co., Inc., is a Director of the
Insurer's parent company, MBIA Inc. Although all issues contained in the Trust
are individually insured, neither the Trust, the Units nor the portfolio is
insured directly or indirectly by the Insurer.
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A purpose of the insurance on the Bonds in the portfolio obtained by the
Trust is to obtain a higher yield on the Trust portfolio than would be available
if all the Securities in such portfolio had Standard & Poor's "AAA" rating
and/or Moody's "Aaa" rating but were uninsured and yet at the same time to have
the protection of insurance of payment of interest and principal on the
Securities. There is, of course, no certainty that this result will be achieved.
Any Pre- insured Bonds in the Trust (all of which are rated "AAA" by Standard &
Poor's and/or "Aaa" by Moody's, respectively) may or may not have a higher yield
than uninsured bonds rated "AAA" by Standard & Poor's and/or "Aaa" by Moody's,
respectively. In selecting Pre-insured Bonds for the portfolio of the Trust, the
Sponsors have applied the criteria hereinbefore described.
Because the Securities in the Trust are insured by MBIA Insurance
Corporation as to the payment of principal and interest, Standard & Poor's has
assigned its "AAA" investment rating to the Units and Bonds in the Trust and
Moody's has assigned a rating of "Aaa" to all of the Bonds in the Trust, as
insured. See "Notes to Portfolio" in Part A. These ratings apply to the Bonds
only while they are held in the Trust. Also, these ratings reflect Standard &
Poor's and Moody's current assessments of the creditworthiness of the Insurer
and their ability to pay claims on their policies of insurance. The obtaining of
these ratings by the Trust should not be construed as an approval of the
offering of the Units by Standard & Poor's or Moody's or as a guarantee of the
market value of the Trust or of the Units. These ratings are not a
recommendation to buy, hold or sell and do not take into account the extent to
which Trust expenses or portfolio asset sales for less than the Trust's
acquisition price will reduce payment to the Unit holders of the interest or
principal.
For additional information concerning the Insurer, see "The Insurer" in
Part A.
TAX STATUS
This is a general discussion of some of the income tax consequences of the
ownership of the Units. It applies only to investors who hold the Units as
capital assets. It does not discuss special rules that apply to investors
subject to special treatment, such as securities dealers, financial institutions
and insurance companies.
Interest income on the Bonds contained in the portfolio of the Trust is, in
the opinion of bond counsel to the issuing governmental authorities rendered at
the time of original issuance of the Bonds, excludible from gross income under
the Code. See "The Trust" in Part A.
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or
on a sale or redemption of a Unit is, however, includible 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), does not
include any amount received in respect of accrued interest, accrued original
issue discount or 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. Gain on the
disposition of a Bond purchased at a market discount generally will be treated
as ordinary income, rather than capital gain, to the extent of accrued market
discount. Long-term capital gains realized by non-corporate Unit holders (with
respect to Units held for more than one year) will be taxed at a maximum federal
income tax rate of 20%, while ordinary income received by non-corporate Unit
holders will be taxed at a maximum federal income tax rate of 39.6%. The
deductibility of capital losses is limited to the amount of capital gain; in
addition, up to $3,000 of capital losses of noncorporate Unit holders ($1,500 in
the case of married individuals filing separate returns) may be deducted against
ordinary income. Since the proceeds from sales of Bonds, under certain
circumstances, may not be distributed pro-rata, the Unit holder's taxable income
for any year may exceed their actual cash distributions in that year.
In the opinion of Battle Fowler LLP, special counsel for the Sponsors,
under existing law:
The Trust is not an association taxable as a corporation for Federal
income tax purposes, and interest on the Bonds that is excludible from
Federal gross income under the Code when received by the Trust will be
excludible from the Federal gross income of the Unit holders of the Trust.
Any proceeds paid under the insurance policy described above issued to the
Trust with respect to the Bonds and any proceeds paid under individual
policies obtained by issuers of Bonds or other parties that represent
maturing interest on defaulted obligations held by the Trust will be
excludible
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from Federal gross income if, and to the same extent as, such interest
would have been so excludible if paid in the normal course by the issuer of
the defaulted obligations.
Each Unit holder will be considered the owner of a pro rata portion of
the Bonds and any other assets held in the Trust under the grantor trust
rules of Code Sections 671-679. Each Unit holder will be considered to have
received its pro rata share of income from Bonds held by the Trust on
receipt (or earlier accrual, depending on the Unit holder's method of
accounting and depending on the existence of any original issue discount)
by the Trust, and each Unit holder will have a taxable event when an
underlying Bond is disposed of (whether by sale, redemption, or payment at
maturity) or when the Unit holder redeems or sells its Units.
Under the income tax laws of the State and City of New York, the Trust
is not an association taxable as a corporation and the income of the Trust
will be treated as the income of the Unit holders.
A Unit holder who is a non-resident of New York will not be subject to
New York State or City income tax on any interest or gain derived from its
interest in the Trust's assets or upon any gain from the sale of its Units
except to the extent that such interest or gain is from property employed
in a business, trade, profession or occupation carried on in the State of
New York.
The opinion of Battle Fowler LLP as to the tax status of the Trust is
not affected by the provision of the Trust Agreement that authorizes the
acquisition of Replacement Bonds or by the implementation of the option
automatically to reinvest principal and interest distributions from the
Trust pursuant to the Automatic Accumulation Plan, described under
"Automatic Accumulation Account" in this Part B.
Gain from a sale of a bond or Unit will be treated as long term capital
gain, if the Unitholder's holding period for its Unit (and the Bonds) is more
than one year, assuming that the Unit holder holds the Unit as a capital asset.
The total tax basis (i.e., cost) of each Unit to a Unit holder is allocated
among each of the Bonds held in the Trust (in accordance with the proportion of
the Trust comprised by each such Bond) in order to determine the Unit holders
per Unit tax basis for each Bond, and the tax basis reduction requirements of
the Code relating to amortization of bond premium will apply separately to the
per Unit cost of each such Bond. Therefore, under some circumstances, a Unit
holder may realize taxable gain when its Units are sold or redeemed for an
amount equal to its original cost. No deduction is allowed for the amortization
of bond premium on tax-exempt bonds such as the Bonds. In the opinion of bond
counsel for the issuing governmental authority, none of the interest received
from the portfolio is subject to the alternative minimum tax for individuals.
However, some or all of the interest received from the portfolio may be
includible in the calculation of a corporation's alternative minimum tax.
For Federal income tax purposes, when a Bond is sold, a Unit holder may
exclude from its share of the amount received any amount that represents accrued
interest or accrued original issue discount, but may not exclude amounts
attributable to market discount. Thus, when a Bond is sold by the Trust, taxable
gain or loss will equal the difference between (i) the amount received
(excluding the portion representing accrued interest) and accrued original issue
discount and (ii) the adjusted basis (including any accrued original issue
discount, limited in the case of Bonds issued after June 8, 1980 to the portion
earned from the date of acquisition, as discussed below). In the case of Bonds
acquired at a market discount, gain will be treated as ordinary income to the
extent of accrued market discount.
A Unit holder may also realize taxable gain or loss when a Unit is sold or
redeemed. Taxable gain will result if a Unit is sold or redeemed for an amount
greater than its adjusted basis to the Unit holder. The amount received when a
Unit is sold or redeemed is allocated among all the Bonds in the Trust in the
same manner as when the Trust disposes of Bonds, and the Unit holder may exclude
accrued interest, including the earned portion of any original issue discount,
but not amounts attributable to market discount. In the case of Bonds acquired
at a market discount, gain will be treated as ordinary income to the extent of
accrued market discount. The return of a Unit holder's tax basis is otherwise a
tax-free return of capital.
If the Trust purchases any units of a previously issued series then, based
on the opinion of counsel with respect to such series, the Trust's pro rata
ownership interest in the bonds of such series (or any previously issued series)
will be treated as though it were owned directly by the Trust.
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In the opinion of counsel to the issuing governmental authorities, an
individual Unit holder who resides in New York State or City will not be subject
to State or City tax on interest income derived from the Bonds held in the Trust
(except in certain limited circumstances), although it will be subject to New
York State and, depending upon its place of residence, City tax with respect to
any gains realized when Bonds are sold, redeemed or paid at maturity or when any
such Units are sold or redeemed. In addition, an individual Unit holder residing
in New York State or City will not be subject to State or City income tax on any
proceeds paid under the insurance policy or policies described above with
respect to the Trust which represent maturing interest on defaulted obligations
held by the Trustee if, and to the same extent as, such interest would have been
so excludible if paid by the issuer of the defaulted obligations. A New York
State or City resident should determine its basis and holding period for his
Units for New York State and City tax purposes in the same manner as for Federal
tax purposes.
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. The Code does not otherwise require corporations, and does not
require taxpayers other than corporations, including individuals, to treat
interest on the Bonds as an item of tax preference in computing an alternative
minimum tax; (3) subject to certain exceptions, no financial institution is
allowed a deduction for that portion of the institution's interest expense
allocable to tax-exempt interest on tax-exempt bonds acquired after August 7,
1986; (4) the amount of the deduction allowed to property and casualty insurance
companies for underwriting loss is decreased by an amount determined with regard
to tax-exempt interest income and the deductible portion of dividends received
by such companies; (5) all taxpayers are required to report for informational
purposes on their Federal income tax returns the amount of tax-exempt interest
they receive; (6) an issuer must meet certain requirements on a continuing basis
in order for interest on a tax-exempt bond to be tax-exempt, with failure to
meet such requirements resulting in the loss of tax exemption; and (7) a branch
profits tax on U.S. branches of foreign corporations is implemented which,
because of the manner in which the branch profits tax is calculated, may have
the effect of subjecting the U.S. branch of a foreign corporation to Federal
income tax on the interest on bonds otherwise exempt from such tax.
Section 86 of the Code provides that a portion of social security benefits
is includible in taxable income for taxpayers whose "modified adjusted gross
income" combined with a portion of their social security benefits exceeds a base
amount. The base amount is $25,000 for an individual, $32,000 for a married
couple filing a joint return and zero for married persons filing separate
returns. Under Section 86 of the Code, interest on tax-exempt bonds is to be
added to adjusted gross income for purposes of determining whether an
individual's income exceeds the base amount above which a portion of the
benefits would be subject to tax.
In addition, certain "S Corporations", with accumulated earnings and
profits from Subchapter C years, may be subject to minimum tax on excess passive
income, including tax-exempt interest, such as interest on the Bonds.
At the time of the original issuance of the Bonds held by the Trust,
opinions relating to the validity of the Bonds and the exemption of interest
thereon from regular Federal income tax were or (with respect to "when issued"
Bonds) were to be rendered by bond counsel to the issuing governmental
authorities. Neither the Sponsors nor their special counsel have made any review
of proceedings relating to the issuance of such Bonds or the basis for bond
counsel's opinions.
Under Section 265 of the Code, if borrowed funds are used by a Unit holder
to purchase or carry Units of the Trust, interest on such indebtedness will not
be deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service, the purchase of Units may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to the
purchase of Units. Similar rules are applicable for purposes of state and local
taxation.
The Trust may contain Bonds issued with original issue discount. The Code
requires holders of tax-exempt obligations issued with original issue discount,
such as the Trust, to accrue tax-exempt original issue discount by using the
constant interest method provided for the holders of taxable obligations and to
increase the basis of a tax-exempt obligation by the
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amount of accrued tax-exempt original issue discount. These provisions are
applicable to obligations issued after September 3, 1982 and acquired after
March 1, 1984. The Trust's tax basis in a Bond is increased by any accrued
original issue discount as is a Unit holder's tax basis in his Units. For Bonds
issued after June 9, 1980 that are redeemed prior to maturity, the difference
between the Trust's basis, as adjusted, and the amount received will be taxable
gain or loss to the Unit holders.
Unit holders should consult their own tax advisors with respect to the
state and local tax consequences of owning original issue discount bonds. It is
possible that under applicable provisions governing determination of such state
and local taxes, interest on tax-exempt bonds such as any Bonds issued with
original issue discount may be deemed to be received in the year of accrual even
though there is no corresponding cash payment.
If a Unit holder's tax cost for 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 its pro rata interest in the
Bond, but will not result in any deduction from the Unit holder's income. Thus,
for example, a Unit holder who purchases a pro rata interest in a Bond at a
premium and resells it at the same price will recognize taxable gain equal to
the portion of the premium that was amortized during the period the Unit holder
is considered to have held such interest.
Bond premium must be amortized under the method the Unit holder regularly
employs for amortizing bond premium (assuming such method is reasonable). With
respect to a callable bond, the premium must be computed with respect to the
call price and be amortized to the first call date (and successively to later
call dates based on the call prices for those dates).
In the case of Bonds that are private activity bonds, the opinions of bond
counsel to the respective issuing authorities indicate that interest on such
Bonds is exempt from regular federal income tax. However, interest on such Bonds
will not be exempt from regular federal income tax for any period during which
such Bonds are held by a "substantial user" of the facilities financed by the
proceeds of such Bonds or by a "related person" thereof within the meaning of
the Code. Therefore, interest on any such Bonds allocable to a Unit holder who
is such a "substantial user" or "related person" thereof will not be tax-exempt.
Furthermore, in the case of Bonds that qualify for the "small issue" exemption,
the "small issue" exemption will not be available or will be lost if, at any
time during the three-year period beginning on the later of the date the
facilities are placed in service or the date of issue, all outstanding
tax-exempt IRBs, together with a proportionate share of any present issue, of an
owner or principal user (or related person) of the facilities was determined to
have exceeded $40,000,000 on the date of issue. In the case of Bonds issued
under the $10,000,000 "small issue" exemption, interest on such Bonds will
become taxable if the face amount of the Bonds plus certain capital expenditures
exceeds $10,000,000 within 3 years of the date of issue of such Bonds.
In addition, a Bond can lose its tax-exempt status as a result of other
subsequent but unforeseeable events such as prohibited "arbitrage" activities by
the issuer of the Bond or the failure of the Bond to continue to satisfy the
conditions required for the exemption of interest thereon from regular federal
income tax. No investigation has been made as to the current or future owners or
users of the facilities financed by the Bonds, the amount of such persons'
outstanding tax-exempt private activity bonds, or the facilities themselves, and
no assurance can be given that future events will not affect the tax-exempt
status of the Bonds. Investors should consult their tax advisors for advice with
respect to the effect of these provisions on their particular tax situation.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME TAX
PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER THE INCOME TAX LAWS OF
ANY STATE OR LOCAL GOVERNMENT. INTEREST INCOME DERIVED FROM THE BONDS IS NOT
EXCLUDED FROM NET INCOME IN DETERMINING NEW YORK STATE OR NEW YORK CITY
FRANCHISE TAXES ON CORPORATIONS OR FINANCIAL INSTITUTIONS. THE LAWS OF SUCH
STATES AND LOCAL GOVERNMENTS VARY WITH RESPECT TO THE TAXATION OF SUCH
OBLIGATIONS.
From time to time, proposals have been introduced before Congress, the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals, including proposals for a "flat tax" or
"consumption tax", may be introduced in the future. The
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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 South Carolina v. Baker, the U.S. Supreme Court held that the federal
government may constitutionally require states to register bonds they issue and
subject the interest on such bonds to federal income tax if not registered, and
that there is no constitutional prohibition against the federal government's
taxing the interest earned on state or other municipal bonds. The Supreme Court
decision affirms the authority of the federal government to regulate and control
bonds such as the Bonds in the Trust and to tax interest on such bonds in the
future. The decision does not, however, affect the current exemption from
taxation of the interest earned on the Bonds in the Trust in accordance with
Section 103 of the Code.
The opinions of counsel to the issuing governmental authorities to the
effect that interest on the Bonds is exempt from regular federal income tax may
be limited to law existing at the time the Bonds were issued, and may not apply
to the extent that future changes in law, regulations or interpretations affect
such Bonds. Investors are advised to consult their own advisors for advice with
respect to the effect of any legislative changes.
RIGHTS OF UNIT HOLDERS
Certitficates. Ownership of Units of the Trust is evidenced by registered
certificates executed by the Trustee and the Sponsors. The Trustee is authorized
to treat as the record owner of Units that person who is registered as such
owner on the books of the Trustee. Certificates are transferable by presentation
and surrender to the Trustee properly endorsed and accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit holder may be required to pay $2.00 per certificate reissued or
transferred and to pay any governmental charge that may be imposed in connection
with each such transfer or interchange. For new certificates issued to replace
destroyed, stolen or lost certificates, the Unit holder must furnish indemnity
satisfactory to the Trustee and must pay such expenses as the Trustee may incur.
Mutilated certificates must be surrendered to the Trustee for replacement.
Distribution of Interest and Principal. While interest will be distributed
semi-annually or monthly, depending on the method of distribution chosen,
principal, including capital gains, will be distributed only semi-annually;
provided, however, that, other than for purposes of redemption, no distribution
need be made from the Principal Account if the balance therein is less than
$1.00 per Unit then outstanding, and that, if at any time the pro rata share
represented by the Units of cash in the Principal Account exceeds $10.00 as of a
Monthly Record Date, the Trustee shall, on the next succeeding Monthly
Distribution Date, distribute the Unit holder's pro rata share of the balance of
the Principal Account. Interest (semi-annually or monthly) and principal,
including capital gains, if any (semi-annually), received by the Trust will be
distributed on each Distribution Date to Unit holders of record of the Trust as
of the preceding Record Date who are entitled to such distributions at that time
under the plan of distribution chosen. All distributions will be net of
applicable expenses and funds required for the redemption of Units. See "Summary
of Essential Financial Information" in Part A, "Rights of Unit Holders--Expenses
and Charges" and "Rights of Unit Holders--Redemption" in Part B.
The Trustee will credit to the Interest Account for the Trust all interest
received by the Trust, including that part of the proceeds of any disposition of
Securities which represents accrued interest. Other receipts of the Trust will
be credited to the Principal Account for the Trust. The pro rata share of the
Interest Account of the Trust and the pro rata share of cash in the Principal
Account (other than amounts representing failed contracts as previously
discussed) represented by each Unit thereof will be computed by the Trustee each
month as of the Record Date. See "Summary of Essential Financial Information" in
Part A. Proceeds received from the disposition of any of the Securities
subsequent to a Record Date and prior to the next succeeding Distribution Date
will be held in the Principal Account for the Trust and will not be distributed
until the second succeeding Distribution Date. Because interest on the
Securities is not received by the Trust at a constant rate throughout the year,
any particular interest distribution may be more or less than the amount
credited to the Interest Account of the Trust as of the Record Date. See
"Summary of Essential Financial Information" in Part A. Persons who purchase
Units between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date following their purchase of Units
under the applicable plan of distribution.
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The difference between the estimated net interest accrued to the first
Record Date and to the related Distribution Date is an asset of the respective
Unit holder and will be realized in subsequent distributions or upon the earlier
of the sale of such Units or the maturity, redemption or sale of Securities in
the Trust.
Purchasers of Units who desire to receive distributions on a monthly basis
may elect to do so at the time of purchase during the initial public offering
period. Those indicating no choice will be deemed to have chosen the semi-annual
distribution plan. Record dates for monthly distributions will be the fifteenth
day of the preceding month and record dates for semi-annual distributions will
be the fifteenth day of May and November.
Details of estimated interest distributions under the payment plans, on a
per Unit basis, appear in the footnotes to the "Summary of Essential Financial
Information" in Part A.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Each April, the Trustee will furnish each Unit holder a card to be
returned together with the Certificate by May 15 of such year if the Unit holder
desires to change his plan of distribution, and the change will become effective
on May 16 of such year for the ensuing twelve months. For a discussion of
redemption of Units, see "Rights of Unit Holders--Redemption-- Tender of Units"
in Part B.
The Trustee will, as of the fifteenth day of each month, deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust as of the
first day of such month. See "Rights of Unit Holders--Expenses and Charges" in
Part B. The Trustee also may withdraw from said accounts such amounts, if any,
as it deems necessary to establish a reserve for any governmental charges
payable out of the Trust. Amounts so withdrawn shall not be considered a part of
the Trust's assets until such time as the Trustee shall return all or any part
of such amounts to the appropriate account. In addition, the Trustee may
withdraw from the Interest Account and the Principal Account such amounts as may
be necessary to cover redemption of Units by the Trustee. See "Rights of Unit
Holders--Redemption" in Part B. Funds which are available for future
distributions, payments of expenses and redemptions are in accounts which are
non-interest bearing to the Unit holders and are available for use by the
Trustee pursuant to normal banking procedures.
Because interest on Securities in the Trust is payable at varying
intervals, usually in semi-annual installments, the interest accruing to the
Trust will not be equal to the amount of money received and available monthly
for distribution from the Interest Account to Unit holders choosing the monthly
payment plan. Therefore, on each monthly Distribution Date, the amount of
interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest distribution
made. In order to eliminate fluctuations in monthly interest distributions
resulting from such variances during the first year of the Trust, the Trustee is
required by the Trust Agreement to advance such amounts as may be necessary to
provide monthly interest distributions of approximately equal amounts. In
addition, the Trustee has agreed to advance sufficient funds to the Trust in
order to reduce the amount of time before monthly distributions of interest to
Unit holders commence. The Trustee will be reimbursed, without interest, for any
such advances from funds available from the Interest Account of the Trust. The
Trustee's fee takes into account the costs attributable to the outlay of capital
needed to make such advances.
In order to acquire certain of the Securities subject to contract, it may
be necessary to pay on the settlement dates for delivery of such Securities
amounts covering accrued interest on such Securities which exceed the amounts
paid by Unit holders (which excess will be made available under a letter of
credit furnished by the Sponsors on the Date of Deposit). The Trustee has agreed
to pay for any amounts necessary to cover any such excess and will be reimbursed
therefor (without interest) when funds become available from interest payments
on the particular Securities with respect to which such payments may have been
made. Also, since interest on such Securities in the portfolio of the Trust (see
"The Portfolio" in Part A) does not begin accruing as tax-exempt interest income
to the benefit of Unit holders until such Bonds' respective dates of delivery
(accrued interest prior to delivery being treated under the Code as a return of
principal), the Trustee will, in order to cover interest treated as a return of
principal, adjust its fee downward in an amount equal to the amount of interest
that would have so accrued as tax-exempt interest (if not treated as a return of
principal) on such Securities between the date of settlement for the Units and
such dates of delivery.
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In addition, because of the varying interest payment dates of the
Securities comprising the Trust portfolio, accrued interest at any point in
time, subsequent to the recovery of any advancements of interest made by the
Trustee, will be greater than the amount of interest actually received by the
Trust and distributed to Unit holders. Therefore, there will usually remain an
item of accrued interest that is added to the value of the Units. If a Unit
holder sells all or a portion of his Units he will be entitled to receive his
proportionate share of the accrued interest from the purchaser of his Units.
Similarly, if a Unit holder redeems all or a portion of his Units, the
Redemption Price per Unit which he is entitled to receive from the Trustee will
also include accrued interest on the Securities. Thus, the accrued interest
attributable to a Unit will not be entirely recovered until the Unit holder
either redeems or sells such Unit or until the Trust is terminated.
Expenses and Charges. Initial Expenses. Investors will bear all or a
portion of the costs incurred in organizing the Trust -- including costs of
preparing the registration statement, the trust indenture and other closing
documents, registering units with the SEC and the states and the initial audit
of the Trust's portfolios. During the initial public offering period only, a pro
rata portion of such organization costs will be charged upon the investor's
purchase of Units.
Fees. The Trustee's, Sponsors' and Evaluator's fees are set forth under the
"Summary of Essential Financial Information" in Part A. The Sponsors' fee, which
is earned for portfolio supervisory services, is based on the face amount of
Securities in the Trust at December 1 of each year. The Sponsors' fee, which is
not to exceed the maximum amount set forth under the "Summary of Essential
Financial Information" for the Trust, may exceed the actual costs of providing
portfolio supervisory services for the Trust, but at no time will the total
amount the Sponsors receive for portfolio supervisory services rendered to all
series of Empire State Municipal Exempt Trust in any calendar year exceed the
aggregate cost to them of supplying such services in such year.
The Trustee will receive for its ordinary recurring services to the Trust
an annual fee in the amount set forth in the "Summary of Essential Financial
Information" for the Trust; provided, however, that such fees may be adjusted as
set forth under the "Summary of Essential Financial Information". There is no
minimum fee and, except as hereinafter set forth, no maximum fee. For a
discussion of certain benefits derived by the Trustee from the Trust's funds,
see "Rights of Unit Holders--Distribution of Interest and Principal" in Part B.
For a discussion of the services performed by the Trustee pursuant to its
obligations under the Trust Agreement, reference is made to the material set
forth under "Rights of Unit Holders" in Part B.
The Trustee's and Evaluator's fees are payable monthly on or before each
Distribution Date and the Sponsors' annual fee is payable annually on December
1, each from the Interest Account to the extent funds are available and then
from the Principal Account. These fees may be increased without approval of the
Unit holders by amounts not exceeding proportionate increases in consumer prices
for services as measured by the United States Department of Labor's Consumer
Price Index entitled "All Services Less Rent"; except no such increase in the
Trustee's fee will be so made for the sole purpose of making up any downward
adjustment therein as described in "Summary of Essential Financial Information".
If the balances in the Principal and Interest Accounts are insufficient to
provide for amounts payable by the Trust, or amounts payable to the Trustee
which are secured by its prior lien on the Trust, the Trustee is permitted to
sell Bonds to pay such amounts.
Insurance Premiums. The cost of the MBIA Insurance Corporation insurance
obtained by the Trust, based on the aggregate amount of Bonds in the Trust as of
the Date of Deposit, is set forth in the "Summary of Essential Financial
Information". Premiums, which are obligations of the Trust, are payable monthly
by the Trustee on behalf of the Trust. As Securities in the portfolio mature,
are redeemed by their respective issuers or are sold by the Trustee, the amount
of the premium will be reduced in respect of those Securities no longer owned by
and held in the Trust. The Trust does not incur any premium expense for any
insurance which has been obtained by an issuer of a Pre-insured Bond, since the
premium or premiums for such insurance have been paid by such issuer or other
party. Pre-insured Bonds, however, are additionally insured by the Trust. No
premium will be paid by the Trust on Bonds which are also MBIA Insurance
Corporation Pre-insured Bonds or Municipal Bond Insurance Association
Pre-insured Bonds. The premium payable for Permanent Insurance and the related
custodial fee will be paid solely from the proceeds of the sale of a Bond from
the Trust in the event the Trustee exercises the right to obtain Permanent
Insurance on such Bond.
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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). To the extent lawful, the Trust shall bear the expenses
associated with updating the Trust's registration statement and maintaining
registration or qualification of the Units and/or a Trust under Federal or state
securities laws subsequent to initial registration. Such expenses shall include
legal fees, accounting fees, typesetting fees, electronic filing expenses and
regulatory filing fees. The expenses associated with updating registration
statements have been historically paid by a unit investment trust's sponsor. All
direct distribution expenses of the trusts (including the costs of maintaining
the secondary market for the trusts), such as printing and distributing
prospectuses, and preparing, printing and distributing any advertisements or
sales literature will be paid at no cost to the Trust. Any payments received by
the Sponsor reimbursing it for payments made to update the Trust's registration
statement will not exceed the costs incurred by the Sponsors.The above expenses,
including the Trustee's fee, when paid by or owing to the Trustee, are secured
by a lien on the Trust. In addition, the Trustee is empowered to sell Securities
in order to make funds available to pay all expenses.
Reports and Records. The Trustee shall furnish Unit holders of the Trust in
connection with each distribution a statement of the amount of interest, if any,
and the amount of other receipts, if any, which are being distributed, expressed
in each case as a dollar amount per Unit. Within a reasonable time after the end
of each calendar year, the Trustee will furnish to each person who at any time
during the calendar year was a Unit holder of record, a statement providing the
following information: (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Securities and any earned original issue discount), and, if the issuers of the
Securities are located in different states or territories, the percentage of
such interest by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust (including insurance
costs), redemptions of Units and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (2) as to the Principal Account: the dates of
disposition of any Securities and the net proceeds received therefrom (including
any unearned original issue discount but excluding any portion representing
interest, with respect to the Trust the premium attributable to the Trustee's
exercise of the right to obtain Permanent Insurance and any related custodial
fee), deductions for payments of applicable taxes and for fees and expenses of
the Trust, purchase of Replacement Bonds, redemptions of Units, the amount of
any "when issued" interest treated as a return of capital and the balance
remaining after such distributions and deductions, expressed both as a total
dollar amount and as a dollar amount representing the pro rata share of each
Unit outstanding on the last business day of such calendar year; (3) a list of
the Securities held and the number of Units outstanding on the last business day
of such calendar year; (4) the Redemption Price per Unit based upon the last
computation thereof made during such calendar year; and (5) amounts actually
distributed during such calendar year from the Interest Account and from the
Principal Account, separately stated, expressed both as total dollar amounts and
as dollar amounts representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit holders at all
reasonable times during usual business hours, books of record and account of its
transactions as Trustee including records of the names and addresses of Unit
holders of the Trust, certificates issued or held, a current list of Securities
in the Trust and a copy of the Trust Agreement.
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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" in Part B). Unit holders must sign exactly as their
names appear on the face of the certificate with signature(s) guaranteed by an
officer of a national bank or trust company, a member firm of either the New
York, Midwest or Pacific Stock Exchange, or in such other manner as may be
acceptable to the Trustee. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
Within seven calendar days following such tender, or if the seventh
calendar day is not a business day, on the first business day prior thereto, the
Unit holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in the "Summary of Essential Financial Information" as of the next
subsequent Evaluation Time. See "Redemption--Computation of Redemption Price per
Unit." The "date of tender" is deemed to be the date on which Units are received
by the Trustee, except that as regards Units received after the Evaluation Time
on the New York Stock Exchange, the date of tender is the next day on which such
Exchange is open for trading or the next day on which there is a sufficient
degree of trading in Units of the Trust, and such Units will be deemed to have
been tendered to the Trustee on such day for redemption at the Redemption Price
computed on that day. For information relating to the purchase by the Sponsors
of Units tendered to the Trustee for redemption at prices in excess of the
Redemption Price, see "Rights of Unit Holders--Redemption--Purchase by the
Sponsors of Units Tendered for Redemption" in Part B.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account, or, if the balance therein is insufficient, from the Principal Account.
All other amounts paid on redemption shall be withdrawn from the Principal
Account. The Trustee is empowered to sell Securities in order to make funds
available for redemption. Such sales, if required, could result in a sale of
Securities by the Trustee at a loss. To the extent Securities are sold, the size
and diversity of the Trust will be reduced.
If the Trustee exercises the right to obtain Permanent Insurance on a Bond
in the Trust, such Bond will be sold from the Trust on an insured basis. In the
event that the Trustee does not exercise the right to obtain Permanent Insurance
on a Bond, such Bond will be sold from the Trust on an uninsured basis, since
the MBIA Insurance Corporation insurance obtained by the Trust covers the timely
payment of principal and interest when due on the Bonds only while the Bonds are
held in and owned by the Trust. If the Trustee does not obtain Permanent
Insurance on a Defaulted Bond, to the extent that Bonds which are current in
payment of interest are sold from the Trust portfolio in order to meet
redemption requests and Defaulted Bonds are retained in the Portfolio in order
to preserve the related insurance protection applicable to said Bonds, the
overall value of the Bonds remaining in the Trust will tend to diminish. See
"Sponsors--Responsibility" in Part B for the effect of selling Defaulted Bonds
to meet redemption requests.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or during which trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by rule or
regulation) an emergency exists as a result of which disposal or evaluation of
the underlying Bonds is not reasonably practicable, or for such other periods as
the Securities and Exchange Commission has by order permitted.
Because insurance obtained by the Trust terminates as to Bonds which are
sold by the Trustee, and because the insurance obtained by the Trust does not
have a realizable cash value which can be used by the Trustee to meet
redemptions of Units, under certain circumstances the Sponsors may apply to the
Securities and Exchange Commission for an order permitting a full or partial
suspension of the right of Unit holders to redeem their Units if a significant
portion of the Bonds in the Trust is in default in payment of principal or
interest or in significant risk of such default.
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No assurances can be given that the Securities and Exchange Commission will
permit the Sponsors to suspend the rights of Unit holders to redeem their Units,
and without the suspension of such redemption rights when faced with excessive
redemptions the Sponsors may not be able to preserve the benefits of the Trust's
insurance on Defaulted Bonds.
Computation of Redemption Price per Unit. The Redemption Price per Unit is
determined by the Trustee on the basis of the bid prices of the Securities in
the Trust, while the Public Offering Price of Units during the initial offering
period is determined on the basis of the offering prices of the Securities, both
as of the Evaluation Time on the day any such determination is made. The bid
prices of the Securities may be expected to be less than the offering prices.
This Redemption Price per Unit is each Unit's pro rata share, determined by the
Trustee, of: (1) the aggregate value of the Securities in the Trust (determined
by the Evaluator as set forth below), except for those cases in which the value
of insurance has been included, (2) cash on hand in the Trust (other than cash
covering contracts to purchase Securities), and (3) accrued and unpaid interest
on the Securities as of the date of computation, less (a) amounts representing
taxes or governmental charges payable out of the Trust, (b) the accrued expenses
of the Trust, and (c) cash held for distribution to Unit holders of record as of
a date prior to the evaluation. The Evaluator may determine the value of the
Securities in the Trust (1) on the basis of current bid prices for the
Securities, (2) if bid prices are not available for any Securities, on the basis
of current bid prices for comparable bonds, (3) by appraisal, or (4) by any
combination of the above. In determining the Redemption Price per Unit no value
will be assigned to the portfolio insurance obtained by the Trust on the Bonds
in the Trust unless such Bonds are in default in payment of principal or
interest or in significant risk of such default. On the other hand, Pre-insured
Bonds in the Trust are entitled at all times to the benefits of insurance
obtained by their respective issuers so long as the Pre-insured Bonds are
outstanding and the insurer continues to fulfill its obligations, and such
benefits are reflected and included in the market value of Pre-insured Bonds.
For a description of the situations in which the Evaluator may value the
insurance obtained by the Trust, see "Public Offering--Offering Price" in this
Part B.
The difference between the bid and offering prices of the Securities may be
expected to average 1 1/2% of face amount. In the case of actively traded bonds,
the difference may be as little as 1/2 of 1%, and in the case of inactively
traded bonds such difference usually will not exceed 3%. On the business day
prior to the date of this Prospectus, the aggregate bid side evaluation was
lower than the aggregate offering side evaluation by the amount set forth in the
footnotes to the "Portfolio". For this reason, among others, the price at which
Units may be redeemed could be less than the price paid by the Unit holder. On
the Date of Deposit the aggregate current offering price of such Securities per
Unit exceeded the bid price of such Securities per Unit by the amount set forth
under "Summary of Essential Financial Information".
Purchase by the Sponsors of Units Tendered for Redemption. The Trust
Agreement requires that the Trustee notify the Sponsors of any tender of Units
for redemption. So long as the Sponsors are maintaining a bid in the secondary
market, the Sponsors, prior to the close of business on the second succeeding
business day, will purchase any Units tendered to the Trustee for redemption at
the price so bid by making payment therefor to the Unit holder in an amount not
less than the Redemption Price on the date of tender not later than the day on
which the Units would otherwise have been redeemed by the Trustee (see "Public
Offering--Offering Price--Market for Units" in this Part B). Units held by the
Sponsors may be tendered to the Trustee for redemption as any other Units,
provided that the Sponsors shall not receive for Units purchased as set forth
above a higher price than they paid, plus accrued interest.
The offering price of any Units resold by the Sponsors will be the Public
Offering Price determined in the manner provided in this Prospectus (see "Public
Offering--Offering Price" in Part B). Any profit resulting from the resale of
such Units will belong to the Sponsors which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such Units (see "Public Offering--Sponsors' and Underwriters'
Profits" in this Part B).
Exchange Option. The Sponsors of the series of Empire State Municipal Exempt
Trust, (including the series of Municipal Exempt Trust, the predecessor trust to
Empire State Municipal Exempt Trust) (the "Exchange Trusts") are offering Unit
holders of the Exchange Trusts for which the Sponsors are maintaining a
secondary market an option to exchange a Unit of any series of the Exchange
Trusts for a Unit of a different series of the Exchange Trusts being offered by
the Sponsors (other than in the initial offering period) at a Public Offering
Price generally based on the bid prices of the underlying Securities divided by
the number of Units outstanding (see "Public Offering--Offering Price--Markets
for Units") plus a fixed sales charge of $15 per Unit (in lieu of the normal
sales charge). However, a Unit holder must have
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held his Unit for a period of at least six months in order to exercise the
exchange option or agree to pay a sales charge based on the greater of $15 per
Unit or an amount which together with the initial sales charge paid in
connection with the acquisition of Units being exchanged equals the normal sales
charge of the series into which the investment is being converted, determined as
of the date of the exchange. Such exchanges will be effected in whole Units
only. Any excess proceeds from the Units being surrendered will be returned, and
the Unit holder will not be permitted to advance any new money in order to
complete an exchange. The Sponsors reserve the right to modify, suspend or
terminate this plan at any time without further notice to the Unit holders. In
the event the exchange option is not available to a Unit holder at the time he
wishes to exercise it, the Unit holder will be immediately notified and no
action will be taken with respect to his Units without further instructions from
the Unit holder.
Unit holders are urged to consult their own tax advisors as to the tax
consequences of exchanging Units.
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AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with Empire
Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit holders of
the Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Empire Builder. The Empire Builder is an open-end,
non-diversified investment company whose investment objective is to seek as high
a level of current income exempt from Federal income tax, New York State and New
York City income taxes as is believed to be consistent with preservation of
capital. It is the policy of the Empire Builder to invest primarily in debt
securities the interest income from which is exempt from such taxes.
The Empire Builder has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Empire Builder will
be of "investment grade" quality--that is, at the time of purchase by the Empire
Builder, such bonds either will be rated not lower than the four highest ratings
of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, AA, A or BBB)
or will be unrated bonds which at the time of purchase are judged by the Empire
Builder's investment advisor to be of comparable quality to bonds rated within
such four highest grades. It is a fundamental policy of the Empire Builder that
under normal market conditions at least 90% of the income distributed to its
shareholders will be exempt from Federal income tax, New York State and New York
City personal income taxes. However, during times of adverse market conditions,
when the Empire Builder is investing for temporary defensive purposes in
obligations other than New York tax-exempt bonds, more than 10% of the Empire
Builder's income distributions could be subject to Federal income tax, New York
State and/or New York City income taxes, as described in the current prospectus
relating to the Empire Builder (the "Empire Builder Prospectus"). Glickenhaus &
Co. ("Glickenhaus"), a sponsor of the Trust, acts as the investment adviser and
distributor for the Empire Builder.
Each Unit holder may request from The Bank of New York (the "Plan Agent"),
a copy of the Empire Builder Prospectus describing the Empire Builder and a form
by which such Unit holder may elect to become a participant ("Participant") in
the Plan. Thereafter, as directed by such person, distributions on the
Participant's Units will, on the applicable distribution date, automatically be
applied as of that date by the Trustee to purchase shares (or fractions thereof)
of the Empire Builder at a net asset value as computed as of the close of
trading on the New York Stock Exchange on such date, as described in the Empire
Builder Prospectus. Unless otherwise indicated, new Participants in the Empire
Builder Plan will be deemed to have elected the monthly distribution plan with
respect to their Units. Confirmations of all transactions undertaken for each
Participant in the Plan will be mailed to each Participant by the Plan Agent
indicating distributions and shares (or fractions thereof) of the Empire Builder
purchased on his behalf. A Participant may at any time prior to ten days
preceding the next succeeding distribution date, by so notifying the Plan Agent
in writing, elect to terminate his participation in the Plan and receive future
distributions on his Units in cash. There will be no charge or other penalty for
such termination. The Sponsors, the Trustee, the Empire Builder and Glickenhaus,
as investment advisor for Empire Builder, each will have the right to terminate
this Plan at any time for any reason. The reinvestment of distributions from the
Trust through the Plan will not affect the income tax status of such
distributions. For more complete information about investing in the Empire
Builder through the Plan, including charges and expenses, return the enclosed
card for a copy of the Empire Builder Prospectus. Read it carefully before you
decide to participate.
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[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal & Co., Inc., the
Sponsors have entered into an arrangement (the "Plan") with Lebenthal New York
Municipal Bond Fund (the "Bond Fund") which permits Unit holders of the Trust to
elect to have distributions from Units in the Trust automatically reinvested in
shares of the Bond Fund. The Bond Fund is an open-end, non-diversified
investment company whose investment objective is to maximize current income
exempt from regular Federal income tax, and from New York State and New York
City income taxes, consistent with preservation of capital and with
consideration given to opportunities for capital gain. It is the policy of the
Bond Fund to invest primarily in long term investment grade tax-exempt
securities the interest income from which is exempt from such taxes.
The Bond Fund has an investment objective which differs in certain respects
from that of the Trust. The bonds purchased by the Bond Fund will be of
"investment grade" quality--that is, at the time of purchase by the Bond Fund,
such bonds either will be rated not lower than the four highest ratings of
either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, AA, A or BBB) or
will be unrated bonds which at the time of purchase are judged by the Bond
Fund's investment advisor to be of comparable quality to bonds rated within such
four highest grades. It is a fundamental policy of the Bond Fund that under
normal market conditions at least 80% of the income distributed to its
shareholders will be exempt from regular Federal income tax, and from New York
State and New York City personal income taxes. However, during times of adverse
market conditions, more than 20% of the Bond Fund's income distributions could
be subject to Federal income tax, New York State and/or New York City income
taxes, as described in the current prospectus relating to the Bond Fund (the
"Bond Fund Prospectus"). Lebenthal & Co., Inc., a sponsor of the Trust, acts as
the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the "Plan Agent"),
a copy of the Bond Fund Prospectus describing the Bond Fund and a form by which
such Unit holder may elect to become a participant ("Participant") in the Plan.
Thereafter, as directed by such person, distributions on the Participant's Units
will, on the applicable distribution date, automatically be applied as of that
date by the Trustee to purchase shares (or fractions thereof) of the Bond Fund
at a net asset value as computed as of the close of trading on the New York
Stock Exchange on such date, as described in the Bond Fund Prospectus. Unless
otherwise indicated, new Participants in the Bond Fund Plan will be deemed to
have elected the monthly distribution plan with respect to their Units.
Confirmations of all transactions undertaken for each Participant in the Plan
will be mailed to each Participant by the Plan Agent indicating distributions
and shares (or fractions thereof) of the Bond Fund purchased on his behalf. A
Participant may at any time prior to ten days preceding the next succeeding
distribution date, by so notifying the Plan Agent in writing, elect to terminate
his participation in the Plan and receive future distributions on his Units in
cash. There will be no charge or other penalty for such termination. The
Sponsors, the Trustee, the Bond Fund and Lebenthal & Co. Inc., as manager for
the Bond Fund, each will have the right to terminate this Plan at any time for
any reason. The reinvestment of distributions from the Trust through the Plan
will not affect the income tax status of such distributions. For more complete
information about investing in the Bond Fund through the Plan, including charges
and expenses, return the enclosed card for a copy of the Bond Fund Prospectus.
Read it carefully before you decide to participate.
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SPONSORS
Glickenhaus and Lebenthal are the Sponsors of Empire State Municipal Exempt
Trust, Series 10 and all subsequent series.
Glickenhaus, a New York limited partnership, is engaged in the underwriting
and securities brokerage business, and in the investment advisory business. It
is a member of the New York Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. and is an associate member of the American Stock
Exchange. Glickenhaus acts as a sponsor for successive Series of The Glickenhaus
Value Portfolios and The Municipal Insured National Trusts, and for the prior
series of Empire State Municipal Exempt Trust including those sold under the
name of Municipal Exempt Trust, New York Exempt Series 1, New York Series 2 and
New York Series 3. Glickenhaus, in addition to participating as a member of
various selling groups of other investment companies, executes orders on behalf
of investment companies for the purchase and sale of securities of such
companies and sells securities to such companies in its capacity as a broker or
dealer in securities.
Lebenthal, a New York corporation originally organized as a New York
partnership in 1925, has been buying and selling municipal bonds for its own
account as a dealer for over 68 years; Lebenthal also buys and sells securities
as an agent and participates as an underwriter in public offerings of municipal
bonds. It acted as a sponsor of Empire State Tax Exempt Bond Trust, Series 8 and
successive Series of The Municipal Insured National Trust through Series 28.
Lebenthal is registered as a broker/dealer with the Securities and Exchange
Commission and various state securities regulatory agencies and is a member of
the National Association of Securities Dealers, Inc. and Securities Investors
Protection Corp.
Limitations on Liability. The Sponsors are jointly and severally liable for the
performance of their obligations arising from their responsibilities under the
Trust Agreement, but will be under no liability to the Unit holders for taking
any action or refraining from any action in good faith or for errors in
judgment; nor will they be responsible in any way for depreciation or loss
incurred by reason of the sale of any Bonds, except in cases of their willful
misconduct, bad faith, gross negligence or reckless disregard for their
obligations and duties. See "The Trust--Portfolio" and "Sponsors--
Responsibility" in Part B.
Responsibility. The Trustee shall sell, for the purpose of redeeming Units
tendered by any Unit holder and for the payment of expenses for which funds are
not available, such of the Bonds in a list furnished by the Sponsors as the
Trustee in its sole discretion may deem necessary. In the event the Trustee does
not exercise the right to obtain Permanent Insurance on a Defaulted Bond or
Bonds in the Trust, to the extent that Bonds are sold which are current in
payment of principal and interest in order to meet redemption requests and
Defaulted Bonds are retained in the Trust in order to preserve the related
insurance protection applicable to said Bonds, the overall value of the Bonds
remaining in the Trust's Portfolio will tend to diminish. In the event the
Trustee does not exercise the right to obtain Permanent Insurance on a Defaulted
Bond or Bonds, except as described below and in certain other unusual
circumstances for which it is determined by the Trustee to be in the best
interests of the Unit holders or if there is no alternative, the Trustee is not
empowered to sell Defaulted Bonds for which value has been attributed for the
insurance obtained by the Trust. Because of such restrictions on the Trustee,
under certain circumstances the Sponsors may seek a full or partial suspension
of the right of Unit holders to redeem their Units. See "Rights of Unit
Holders--Redemption" in Part B. The Sponsors are empowered, but not obligated,
to direct the Trustee to dispose of Bonds in the event of advanced refunding.
It is the responsibility of the Sponsors to instruct the Trustee to reject
any offer made by an issuer of any of the Securities to issue new obligations in
exchange and substitution for any Securities pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to accept
such an offer or to take any other action with respect thereto as the Sponsors
may deem proper if the issuer is in default with respect to such Securities or
in the judgment of the Sponsors the issuer will probably default in respect to
such Securities in the foreseeable future.
Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Trust Agreement to the same
extent as Securities originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Securities,
the Trustee is required to give notice thereof to each Unit holder, identifying
the obligations eliminated and the Securities substituted therefor. Except as
stated in this and the preceding paragraph and in the discussion under "The
Trust--General Considerations" in Part B regarding the
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substitution of Replacement Bonds for Failed Bonds, the acquisition by the Trust
of any securities other than the Securities initially deposited is prohibited.
If any default in the payment of principal or interest on any Bond occurs
and no provision for payment is made therefor either pursuant to the portfolio
insurance with respect to the Trust or otherwise within 30 days, the Trustee is
required to notify the Sponsors thereof. If the Sponsors fail to instruct the
Trustee to sell or to hold such Bond within 30 days after notification by the
Trustee to the Sponsors of such default, the Trustee may in its discretion sell
the defaulted Bond and not be liable for any depreciation or loss thereby
incurred. See "Insurance on the Bonds" in Part B.
The Sponsors may direct the Trustee to dispose of Bonds upon default in the
payment of principal or interest, institution of certain legal proceedings or
the existence of certain other impediments to the payment of Bonds, default
under other documents which may adversely affect debt service, default in the
payment of principal or interest on other obligations of the same issuer,
decline in projected income pledged for debt service on revenue Bonds, or
decline in price or the occurrence of other market factors, including advance
refunding, so that in the opinion of the Sponsors the retention of such Bonds in
the Trust would be detrimental to the interest of the Unit holders. The proceeds
from any such sales will be credited to the Principal Account for distribution
to the Unit holders.
Notwithstanding the foregoing, in connection with final distributions to
Unit holders, if the Trustee does not exercise the right to obtain Permanent
Insurance on any Defaulted Bond, because the portfolio insurance obtained by the
Trust is applicable only while Bonds so insured are held by the Trust, the price
to be received by the Trust upon the disposition of any such Defaulted Bond will
not reflect any value based on such insurance. Therefore, in connection with any
liquidation prior to December 31, 2045, with respect to the Trust, it shall not
be necessary for the Trustee to, and the Trustee does not currently intend to,
dispose of any Bonds if retention of such Bonds, until due, shall be deemed to
be in the best interest of Unit holders, including, but not limited to,
situations in which Bonds so insured are in default and situations in which
Bonds so insured have a deteriorated market price resulting from a significant
risk of default. Since the Pre-insured Bonds in the Trust will reflect the value
of the insurance obtained by the Bond issuer, it is the present intention of the
Sponsors not to direct the Trustee to hold any Pre-insured Bonds after the date
of termination. All proceeds received, less applicable expenses, from insurance
on Defaulted Bonds in the Trust not disposed of at the date of termination will
ultimately be distributed to Unit holders of record as of such date of
termination as soon as practicable after the date such Defaulted Bonds become
due and applicable insurance proceeds have been received by the Trustee (see
"Summary of Essential Financial Information").
Agent for Sponsors. The Sponsor named as Agent for Sponsors under "Summary of
Essential Financial Information" has been appointed by the other Sponsors as
agent for purposes of taking action under the Trust Agreement. If the Sponsors
are unable to agree with respect to action to be taken jointly by them under the
Trust Agreement and they cannot agree as to which Sponsor shall act as sole
Sponsor, then the Agent for Sponsors shall act as sole Sponsor. If one of the
Sponsors fails to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, that Sponsor is automatically discharged under the Trust Agreement
and the other Sponsors act as the Sponsors.
Resignation. Any Sponsor may resign at any time provided that at the time of
such resignation one remaining Sponsor maintains a net worth of $1,000,000 and
all the remaining Sponsors are agreeable to such resignation. Concurrent with or
subsequent to such resignation a new Sponsor may be appointed by the remaining
Sponsors and the Trustee to assume the duties of the resigning Sponsor. If, at
any time, only one Sponsor is acting under each Trust Agreement and that Sponsor
shall resign or fail to perform any of its duties thereunder or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may appoint a successor sponsor or terminate the
Trust Agreement and liquidate the Trust.
For financial information regarding the Sponsors see "Sponsors" in Part A.
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TRUSTEE
The Trustee is The Bank of New York, a trust company organized under the
laws of New York, having its offices at 101 Barclay Street, New York, New York
10286. The Bank of New York is subject to supervision and examination by the
Superintendent of Banks of the State of New York and the Board of Governors of
the Federal Reserve System, and its deposits are insured by the Federal Deposit
Insurance Corporation to the extent permitted by law. The Trustee must be a
banking corporation organized under the laws of the United States or any state
which is authorized under such laws to exercise corporate trust powers and must
have at all times an aggregate capital, surplus and undivided profits of not
less than $5,000,000. The duties of the Trustee are primarily ministerial in
nature. The Trustee did not participate in the selection of Securities for the
Trust.
Limitations on Liability. The Trustee shall not be liable or responsible in any
way for depreciation or loss incurred by reason of the disposition of any
monies, Securities or certificates or in respect of any evaluation or for any
action taken in good faith reliance on prima facie properly executed documents
except in cases of its willful misconduct, bad faith, gross negligence or
reckless disregard for its obligations and duties. In addition, the Trustee
shall not be personally liable for any taxes or other governmental charges
imposed upon or in respect of the Trust which the Trustee may be required to pay
under current or future law of the United States or any other taxing authority
having jurisdiction. See "Portfolio" in Part A.
Responsibility. For information relating to the responsibilities of the Trustee
under the Trust Agreement, reference is made to the material set forth under
"Rights of Unit Holders," "Sponsors--Responsibility" and "Sponsors--Resignation"
in this Part B.
Resignation. By executing an instrument in writing and filing the same with the
Sponsors, the Trustee and any successor may resign. In such an event the
Sponsors are obligated to appoint a successor trustee as soon as possible. If
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, or if the Sponsors deem it to be in the best
interest of the Unit holders, the Sponsors may remove the Trustee and appoint a
successor as provided in the Trust Agreement. Such resignation or removal shall
become effective upon the acceptance of appointment by the successor trustee.
If, upon resignation or removal of a trustee, no successor has been appointed
and has accepted the appointment within thirty days after notification, the
retiring trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The resignation or removal of a trustee becomes
effective only when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
EVALUATOR
Both during and after the initial offering period, the Evaluator shall be
Muller Data Corporation ("Muller Data"), a New York corporation with main
offices located at 395 Hudson Street, New York, New York 10014. Muller Data is a
wholly owned subsidiary of Thomson Publishing Corporation, a Delaware
corporation.
Limitations on Liability. The Trustee and the Sponsors may rely on any
evaluation furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Trust Agreement
shall be made in good faith upon the basis of the best information available to
it; provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsors or Unit holders for errors in judgement. But this
provision shall not protect the Evaluator in cases of its willful misconduct,
bad faith, gross negligence or reckless disregard of its obligations and duties.
Responsibility. The Trust Agreement requires the Evaluator to evaluate the
Securities on the basis of their bid prices on each business day after the
initial offering period, when any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsors. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their offering prices, see "Public
Offering--Offering Price" in Part B.
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Resignation. The Evaluator may resign or may be removed by the Sponsors and the
Trustee, and the Sponsors and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor evaluator. If upon
resignation of the Evaluator no successor has accepted appointment within thirty
days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit holders when such an amendment is (1) to
cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interest of the Unit holders; and the Sponsors and the Trustee may
amend the Trust Agreement with the consent of the holders of Certificates
evidencing 66 2/3% of the Units then outstanding, provided that no such
amendment will reduce the interest in the Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units required to
consent to any such amendment without the consent of all the Unit holders. In no
event shall the Trust Agreement be amended to increase the number of Units
issuable thereunder or to permit the deposit or acquisition of securities either
in addition to or in substitution for any of the Bonds initially deposited in
the Trust, except in accordance with the provisions of each Trust Agreement. In
the event of any amendment, the Trustee is obligated to notify promptly all Unit
holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the Securities. The Trustee
shall notify all Unit holders when the value of the Trust as shown by any
evaluation is less than $2,000,000 or less than 20% of the value of the Trust as
of the date hereof, whichever is lower, at which time the Trust may be
terminated (i) by the consent of 66 2/3% of the Units or (ii) by the Trustee;
provided, however, that upon affirmative written notice to the Sponsors and the
holders at least 33 1/3% of the Units may instruct the Trustee not to terminate
the Trust. In no event, however, may the Trust continue beyond the Mandatory
Termination Date set forth in Part A; provided, however, that prior to such
date, the Trustee shall not dispose of any Bonds if the retention of such Bonds,
until due, shall be deemed to be in the best interest of the Unit holders. In
the event of termination, written notice thereof will be sent by the Trustee to
all Unit holders. Within a reasonable period after termination, the Trustee will
sell any remaining Securities, and, after paying all expenses and charges
incurred by the Trust, will distribute to each Unit holder, upon surrender for
cancellation of his certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters will be passed upon by Battle Fowler LLP, 75 East
55th Street, New York, New York 10022, as special counsel for the Sponsors, and
Winston & Strawn, 200 Park Avenue, New York, New York 10166, acting as counsel
for the Trustee.
AUDITORS
The statement of condition of the Trust included in this Prospectus has
been audited by BDO Seidman, LLP, independent certified public accountants, as
stated in their report appearing herein, and has been so included in reliance
upon such report given upon the authority of that firm as experts in accounting
and auditing.
DESCRIPTION OF BOND RATINGS
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information or for other circumstances.
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The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA--Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC--Bonds rated BB, B, CCC and CC are regarded on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): to provide more detailed indications of credit
quality, the ratings from "AA" to "B" may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.
NR--Indicates that no rating has been requested, that there is insufficient
information on which to base a rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
SP-1: Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest. SP-3:
Speculative capacity to pay principal and interest.
* Moody's Investors Service rating. A summary of the meaning of the
applicable rating symbols as published by Moody's follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
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Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Con. (. . .)--Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by: (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification from "Aa" through "B" in its corporate rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the security ranks in the lower end of its generic rating
category.
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PROSPECTUS--Part C:
Note: Part C of this Prospectus may not be distributed unless accompanied by
Parts A and B.
Special Factors Affecting New York
The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
connection with the issuance of New York State and New York City municipal
bonds. The Sponsors have not independently verified this information.
Economic Trends. Over the long term, the State of New York (the
"State") and the City of New York (the "City") face serious potential economic
problems. The City accounts for approximately 41% of the State's population and
personal income, and the City's financial health affects the State in numerous
ways. The State historically has been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic affluence. Statewide, urban
centers have experienced significant changes involving migration of the more
affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older Northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
The City has also had to face greater competition as other major cities have
developed financial and business capabilities which make them less dependent on
the specialized services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax
burden relative to other states. The State and its localities have used these
taxes to develop and maintain their transportation networks, public schools and
colleges, public health systems, other social services and recreational
facilities. Despite these benefits, the burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.4
million, is an international center of business and culture. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. Manufacturing activity in the City is conducted primarily in
apparel and printing.
For each of the 1981 through 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
reductions in City services or entitlement programs, which could adversely
affect the City's economic base.
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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 a 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 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
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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.
Charges 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.
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
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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 re-allocated
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.
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
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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 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.
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Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations and/or
revenue bonds of issuers located in Puerto Rico. Such bonds will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is fully
integrated with that of the mainland United States. During fiscal year 1998,
approximately 90% of Puerto Rico's exports were to the United States mainland,
which was also the source of 61% of Puerto Rico's imports. In fiscal 1998,
Puerto Rico experienced a $8.5 billion positive adjusted merchandise trade
balance. The dominant sectors of the Puerto Rico economy are manufacturing and
services. 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). According to the Labor Department's
Household Employment Survey, during fiscal 1998, total employment increased 0.8%
over fiscal 1997. The preliminary figures of gross product for fiscal 1998,
released in November 1998, was $34.7 billion ($28.5 billion in 1992 prices).
This represents an increase of 8.1% (3.1% in 1992 prices) over fiscal 1997. This
preliminary growth rate is 0.1% above the original base line forecast for fiscal
1998. The Planning Board's gross product forecast for fiscal 1999, made in
February 1998, projected an increase of 2.7% over fiscal 1998. According to the
Labor Department's Household Employment Survey, during the first five months of
fiscal 1999, total employment decreased 1.2% over the same period for fiscal
1998. Total monthly employment averaged 1,124,800 during the first five months
of fiscal 1999, compared to 1,138,400 over the same period in fiscal 1998. The
seasonally adjusted unemployment rate for November 1998 was 13.3%.
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Empire State Municipal Exempt Trust,
Guaranteed Series
Series 144
February 17, 1999
8,000 Units
Estimated Current Return*
4.49%
Estimated Long-Term Return**
4.56%
Taxable Equivalent Yield***
8.52%
*Estimated current return represents net annual interest income for semi-annual
payout after expenses, divided by the public offering price on the date of
deposit had units then been available. The return varies with changes in
interest income, public offering price, frequency of payout and amount invested.
**Estimated long-term return represents an average of the yields-to-maturity (or
call) of the bonds in the trust portfolio, adjusted to reflect expenses and
sales charges. In contrast to the estimated current return, estimated long-term
return reflects the amortization of premium or accretion of discount, if any, on
the bonds in the trust. Unit value will fluctuate with changes in market
conditions.
*** The taxable equivalent yield represents the current yield a New York
resident in the maximum combined tax bracket of 47.30% would have to realize on
the income from a taxable investment to equal the after-tax income from a
triple-tax free investment.
Summary of Essential Information
As of February 16, 1999
The Trust
Offering Price $998.01*
Accrued Interest $0
Estimated Maturity Value $1,000.00
Average Pricing Life 29.50 years
Weighted Average Maturity 29.50 years
Number of Issues/Issuers 6/5
Unit Rating AAA
*Includes sales charge of 4.90% (based on sales of fewer than 250 units).
Distributions** Monthly Semi-Annual
------- -----------
Current Returns 4.44% 4.49%
Est. Long-Term Returns 4.51% 4.56%
Initial Payout Dates 04/01/99 06/01/99
Initial Payouts $ 2.83 $10.33
Regular Record Dates 15th Day 5/15, 11/15
Regular Payout Dates 1st Day 6/01, 12/01
Regular Payouts $ 3.69 $22.41
Annual Income $44.31 $44.81
CUSIPs 292097201 292097219
**Distribution data can vary with changes in the portfolio.
Volume & Exchange Discounts**
During the initial public offering period, the following volume discounts from
the public offering price are available:
Dollar Amount Estimated Estimated
of Sales Charge Current Long-Term
Aggregate Number Reduction Return Return
of Units Purchased Per Unit Semi-Annual Semi-Annual
250 - 499 units $ 2.50 4.50% 4.56%
500 - 999 units $ 7.50 4.53% 4.59%
1,000 - 1,999 units $15.00 4.56% 4.64%
2,000+ units $20.00 4.58% 4.67%
Exchange $10.00 4.54% 4.60%
Comparison of Tax-Free vs. Taxable Yields
Federal, NYS and NYC Income Taxes
If your taxable income is approximately (1):
Joint (2) $ 21,601 $ 43,051 $104,051 $158,551 $283,151
Return $ 43,050 $ 104,050 $158,550 $283,150 and more
Single $ 12,001 $ 25,751 $ 62,451 $130,251 $283,151
Return $ 25,750 $ 62,450 $130,250 $283,150 and more
Then your maximum 1999 combined income taxes are (3):
24.10% 35.75% 39.42% 43.89% 47.30%
and the tax-free yields are equal to these taxable yields (4).
Tax-Free
Yields Taxable Yields
4.00% = 5.3% 6.2% 6.6% 7.1% 7.6%
4.50% = 5.9% 7.0% 7.4% 8.0% 8.5%
5.00% = 6.6% 7.8% 8.3% 8.9% 9.5%
5.50% = 7.2% 8.6% 9.1% 9.8% 10.4%
6.00% = 7.9% 9.3% 9.9% 10.7% 11.4%
1. Income brackets have been rounded for illustration, and rates may vary.
2. After exemptions and deductions other than state and local deductions.
3. Both tables use the highest Federal, state and local applicable rates.
4. Yields have been rounded to facilitate illustration.
Portfolio
On Date of Deposit (February 17, 1999) Maturity/
# Issue Coupon Yld-to-Mat
________________________________________________________________________
1. NY State Dormitory Authority 5.000% 08/01/38
Sisters of Charity Health Care System Corp 5.044%
FHA-Ins'd Mortgage Hospital Revenue Bonds
Series 1999 (MBIA Ins'd)
AAA/Aaa Par Value: $1,500,000 Mkt Value: $1,488,750
Optional call 02/01/09 @ 101 Ant. 08/01/13 @ 100
2. NY City Municipal Water Finance Auth 4.750% 06/15/25
Water & Sewer System Revenue Bonds 5.000%
Fiscal 1998 Series D (MBIA Ins'd)
AAA/Aaa Par Value: $1,750,000 Mkt Value: $1,686,212.50
Optional call 06/15/08 @ 101 S.F. 06/15/22 @ 100
3. Metropolitan Transit Authority 4.750% 07/01/24
Transit Facilities Revenue Bonds 5.012%
Series 1998A (MBIA Ins'd)
AAA/Aaa Par Value: $1,230,000 Mkt Value: $1,183,875
Optional call 07/01/08 @ 101 S.F. 07/01/22 @ 100
4. NY State Dormitory Authority 4.750% 07/01/28
St. John's University Ins'd Revenue Bonds 5.000%
Series 1998 (MBIA Ins'd)
AAA/Aaa Par Value: $250,000 Mkt Value: $240,415
Optional call 07/01/08 @ 101 S.F. 07/01/26 @ 100
5. Port Authority of NY & NJ Consolidated 4.250% 10/01/26
One Hundred Sixteenth Series Bonds 4.988%
(FGIC Ins'd)
AAA/Aaa Par Value: $1,500,000 Mkt Value: $1,335,000
Optional call 11/01/05 @ 101 S.F. 10/01/19 @ 1005.
6. NYC Transitional Finance Authority 4.500% 11/15/27
Future Tax Secured Bonds 4.994%
Fiscal 1998 Series B
(MBIA Ins'd)
AA/Aaa Par Value: $1,770,000 Mkt Value: $1,637,250
Optional call 05/15/08 @ 101 S.F. 11/15/24 @ 100
Total Par Value: $8,000,000 Total Market Value: $7,571,502.50
For more complete information concerning the Trust's portfolio, see "Portfolio"
in Part A of the prospectus.
